WASHINGTON - The central bank plans to actively shape future changes to the payments system, according to Thomas C. Melzer, president of the Federal Reserve Bank of St. Louis.

The Fed will focus on making the system more efficient, more secure and reliable, and more accessible, Mr. Melzer said Monday at the Bank Administration Institute's national payments system conference here.

"We believe the payment system will generally work best when ruled by competitive forces in a free-market economy," Mr. Melzer said. "Even so, at times we might encourage developments that promote the public welfare, or discourage others that aren't in the public's best interest."

The Fed already has embarked on several initiatives to guide the development of the payments system, he said. The government hopes to make the system more efficient by moving consumers from checks to electronic transfers, he said.

"We'll do this in several ways, such as improving our own (automated clearing house) services and actively educating users about the advantages of electronic payments," he said. "This will help to overcome inertia and eliminate confusion."

The Fed will encourage banks to send customers images of their checks, rather than the actual drafts. This will save banks money and prepare customers for the move away from paper checks, he said.

The central bank recognizes that it is not the only processor, Mr. Melzer said. To improve security and reliability, the Fed will work with all new entrants into the payments arena to set industrywide standards, manage risk, and establish "best practices" guidelines for access to the payments system.

On the access front, Mr. Melzer said bankers must accept that nonbanks will vie for payments system business. "It's obvious banks no longer have an exclusive franchise on many financial services, including payments," he said. The Fed will push for a level playing field, according to Mr. Melzer.

The Fed is making technological improvements in its computer systems to improve the payment services it offers, increasing efficiency and reliability, he said. The Fed is bringing a new computer on-line that will centrally process all wire transfers, and it is developing software packages to make transfers easier to execute, he said.

The central bank also reorganized the management of its system, standardizing services across Fed districts.

These initiatives won't work without industry cooperation, he said. "It will take action, greater involvement, collaboration, research, problem solving, and many forms of leadership," Mr. Melzer said. "It also will require all of us - banks, nonbanks, and the Federal Reserve - to work together."

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