WASHINGTON — Regulators should let private companies develop new payment systems, such as smart cards and Internet-based person-to-person transaction technologies, with as little red tape as possible, a Federal Reserve Board official said Wednesday.

“In a dynamic economy, markets need to play a key role in guiding the development of infrastructure, including mechanisms like payments systems,” Fed Vice Chairman Roger W. Ferguson Jr. said at a workshop on electronic payments sponsored by the Federal Reserve Bank of Chicago.

To allow the market to do that job, financial services supervisors must concentrate on “removing barriers to innovation” and should avoid stifling new ideas by being too eager to create regulations, he said.

“Public policy should exercise restraint and resist calls for premature regulation,” Mr. Ferguson said. “Even well-intentioned regulations can end up addressing the wrong problem or short-circuiting creative innovations.”

The central bank is taking steps to smooth the development of new payment alternatives, Mr. Ferguson said. Its Payment Systems Development Committee, of which Mr. Ferguson is co-chairman, has focused especially on finding ways to promote electronic check presentment and check truncation, he said.

Truncation, a system that allows a bank to hold checks it receives rather than returning them to the check writer’s bank, could reduce the cost of handling the billions of checks deposited in U.S. banks every year.

The committee and Fed staffers are actively exploring ways to give electronic images of checks the same legal standing as the checks themselves, which would remove some of the resistance to truncation from banks whose customers want their cancelled checks returned, Mr. Ferguson said.

In his remarks Wednesday, Mr. Ferguson echoed a Fed announcement last month that the payment systems committee was exploring various ways to make electronic check presentment a viable alternative.

The committee is cooperating with the industry to develop standards for electronic check imaging, and Fed staffers are working to facilitate experiments with different methods of electronic check presentment and to develop materials aimed at educating bank customers about the use of electronic images as check substitutes, the central bank said last month.

“True innovations frequently disturb comfortable habits,” Mr. Ferguson said. “Thus we need to approach payments system innovations with an open mind and a willingness to learn.”


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