US Fed Governor Waller argues against interlinking international payment systems for faster speeds

One of the major goals of the financial services industry has been the interlinking of fast payment systems. In fact, it is also a goal of the G20 roadmap, as it will boost cross-border payments. A number of countries have already put bilateral agreements in place, while several others are conducting their own experiments.

Waller cautions against interlinking of fast payment systems

Despite the clear interest in interlinking fast payment systems, not everyone seems to be supportive of the idea. During a recent speech at an event in India, the Federal Reserve governor Christopher Waller cautioned against the move, insisting that the US is focused on building its own FedNow network domestically.

He also warned against the drive to introduce faster cross-border payments. Speaking to the audience during the event, he said that not all frictions that slow payments down are bad. Some of them are purposely built into the global payment system for compliance and risk-management reasons.

“Slowing down the speed at which payments are cleared and settled helps banks prevent money laundering and counter the financing of terrorism, detect fraud, and recover fraudulent or misdirected cross-border payments,” he added.

In addition, he argued that buyers often have an incentive to wait as long as possible before they have to pay for something that they purchased. After presenting these arguments, Waller noted that he is now left with the larger question of whether or not faster international payments should be incentivized.

The US Fed governor believes there are too many obstacles

The governor also pointed out several practical complications that might stand in the way of linking fast payment systems. For example, he noted that India, Brazil, and the US all have different models which could be troublesome to connect and ensure that they are interoperable and compatible with one another.

He argued that achieving interoperability is not a simple task and that resolving technological problems is probably the easiest part of the overall problem. A much greater challenge lies in legal, settlement, compliance, and governance challenges.

In other words, even though there is a lot of interest in connecting fast payment systems among numerous other countries, some of which have already made steps to achieve this goal, US financial officials seem to be against the idea. Waller, in particular, said that he does see the value in a coordination role for the public sector to improve cross-border payments, but he also seems to believe that there are many obstacles in achieving the goal.

The US would much rather continue to build the FedNow network domestically and increase participation in the service. The question now is whether this lack of desire to join the interlinking would leave the US behind the rest of the world if the creation of a global fast payment network turns out to be a more achievable goal than the governor has made it out to be.