Federal Reserve Governor Christopher Waller floated the idea of the central bank creating a “thin master account” for cryptocurrency companies that would give them access to the Fed’s payment lanes while keeping them away from a full Fed master account.
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the narrative
Federal Reserve Governor Christopher Waller suggested this week that cryptocurrency firms could use a limited version of the Fed’s master account system, which would allow these firms to access U.S. payment lanes while limiting their exposure to certain risks that the Fed would want to avoid.
Why is it important
Companies like Custodia have already spent years trying to gain access to a Federal Reserve master account, which would give them a direct line to the central bank’s payments infrastructure and relieve them of the need to work with an intermediary bank. Waller’s proposal for more limited access could benefit stablecoin issuers in particular (and, by extension, the crypto sector in general).
breaking it
Under Waller’s proposal, which he called a “thin master account,” the Fed would allow businesses to access its payment pathways, but not “the Fed’s full suite of financial services,” he said during his opening remarks at the Fed’s Payments Innovation Conference on Tuesday.
“To control the size of accounts and the associated impacts on the Federal Reserve’s balance sheet, Reserve Banks would not pay interest on balances in a payment account, and limits may be imposed on balances,” Waller said. “These accounts would not have daytime overdraft privileges; if the balance reaches zero, payments will be declined. They would not be eligible for discount window loans nor would they have access to all Federal Reserve payment services for which the Reserve Banks cannot control the risk of daytime overdrafts.”
Linda Jeng, CEO of Digital Self Labs and a professor at Georgetown University, compared Waller’s proposal to the idea of narrow banks, which act like banks but do not lend funds.
“Payment stablecoin issuers already operate as a form of narrow bank: they hold fully backed reserves and facilitate payments rather than lending. However, the GENIUS Act does not grant them direct access to the Federal Reserve’s payment lanes, the only step that would integrate these stablecoin issuers into the US monetary system,” he wrote in an op-ed for CoinDesk.
This would have the added benefit of ensuring that stablecoin issuers are backed by the Fed itself, giving the Fed more tools to manage any potential systemic risk, he wrote.
Waller’s proposal in particular may benefit stablecoin issuers, particularly in light of the GENIUS Act and the continued rapid growth of this segment of the cryptocurrency market. Several companies have already requested access to the master account in hopes of stopping working with third-party banks.
Former World Bank President David Malpass told the ACI Worldwide Payments Summit that the proposal, if enacted, would help “defend the purchasing power of the dollar,” according to a transcript of his remarks shared with CoinDesk.
“There is global competition for market share in stablecoins,” he said.
Waller noted in his speech that “this is just a prototype idea to provide some clarity on how things might change.”
“As Federal Reserve staff examine this idea, we will engage with all stakeholders to hear their perspectives on the benefits and drawbacks of this approach,” Waller continued. “You will hear more about this soon.”
Thursday
- 14:00 UTC (10:00 am ET) The Senate Banking Committee said it would hold a nomination hearing for several candidates, including Travis Hill to become president of the Federal Deposit Insurance Corporation (Hill is currently the acting president).
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