What is the Federal Reserves role in the payment system?
The Federal Reserve provides services to help the nation’s payment system run efficiently. Through the Federal Reserve Banks’ cash services operations, the Federal Reserve distributes currency and coin to financial institutions. The Fed’s retail banking services consist primarily of check clearing operations and electronic banking services. Besides clearing paper checks, the Fed sends electronic check files to thousands of financial institutions each day and is on the cutting edge of the newest technology in the industry. The Fed also offers a service called the automated clearinghouse, commonly known as the ACH, which is used most often to process low-dollar, preauthorized recurring retail transactions such as direct deposit of payroll and government benefits, payment of mortgage loans, insurance premiums and utility bills, and corporate cash management. Besides these retail services, the Fed also offers wholesale services — those that are mostly for business-to-business transactions.
