The U.S. Federal Reserve is considering introducing a fresh type of payment account that would make it easier for smaller businesses to participate in the central bank’s payments system, signaling an end to banking access challenges in the cryptocurrency industry.
The newly introduced “payment accounts” would provide full access to financial technology companies seeking to take advantage of the Fed’s payment services, which are currently reserved for immense banks and financial institutions through Fed “master accounts.”
“I believe that we can and should do more to support entities that are actively transforming the payments system,” he added. he said Fed Governor Christopher J. Waller added:
“To that end, I asked the Federal Reserve staff to research the concept of what I call a “payments account.”
Payment accounts would be available to all account-eligible institutions that currently provide payment services through a third-party bank.
“Slim” master accounts would provide access to the Fed’s payment rails while “controlling various risks to the Federal Reserve and the payments system,” Waller said.
While the idea is still in the experimental phase, it signals growing efforts to integrate fintech and cryptocurrency companies into the customary financial system (TradFi).
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Industry observers hailed the news as a positive development for the cryptocurrency industry as many companies have faced debanking challenges in the past.
During former U.S. President Joe Biden’s administration, at least 30 tech and cryptocurrency founders were denied access to banking services in what some insiders described as a coordinated effort known as “Operation Chokepoint 2.0.”
“THANK YOU, Governor Waller, for realizing the terrible mistake the Fed made by locking down banks that only process payments from Fed main accounts and reopening the access rules the Fed put in place to keep @custodiabank out,” Caitlin Long, founder and CEO of Custodia Bank, wrote in Tuesday’s X issue postadding:
“The Fed has told courts that such companies would put financial stability at risk because they are inherently dangerous and unhealthy. Thank you for admitting that this is not true – it has never been true!”
The 2023 collapse of cryptocurrency-friendly banks sparked the first allegations about Operation Chokepoint 2.0. Critics, including venture capitalist Nic Carter, described it as an attempt by the government to pressure banks to cut ties with cryptocurrency companies.
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The Fed is “hands-on” with tokenization, shrewd contracts and AI-based payments
The Fed had been experimenting with blockchain technology for payments even before announcing the idea of ”skinny” master accounts.
The central bank is exploring both blockchain technology and artificial intelligence for payments-related applications, Waller said, adding:
“We are also looking to the future, conducting practical research on tokenization, smart contracts, and the intersection of AI and payments for use in our own payment systems.”
“We do this to understand innovations occurring in the payments system, as well as to assess whether these technologies could provide opportunities to modernize our own payments infrastructure,” Waller added.
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