The president of the Federal Reserve Bank of Kansas City said the central bank must accept the inevitable transition to a cashless and paperless society.
"In the presence of these trends, I strongly believe that our responsibility as central bankers is not to resist or inhibit these changes," said Thomas M. Hoening at an Austrian National Bank conference last week in Vienna. "To do so raises the risk we will be left behind and will lose our ability to constructively shape the future."
The Fed should instead anticipate changes to the payment system and react in a way that best ensures the safety and soundness of the domestic and international financial system, he said.
Mr. Hoening said the move to a cashless society raises a host of new regulatory issues, including how regulators can ensure that those without bank accounts can access the payment system and how to protect individual privacy.
Also, he said this evolution will cause banks to lose their monopoly over the payment system as more companies use nonbank third parties to settle accounts.