Central Banking for All: A Public Option for Bank Accounts

Morgan Ricks, John Crawford, and Lev Menand • June 2018

Currently, banks are allowed to have accounts with the Federal Reserve that come with a lot of privileges: higher interest rates, instant clearing, and the security provided by being nondefaultable. Authors Morgan Ricks, John Crawford, and Lev Menand argue for ending these exclusive privileges by offering “FedAccounts” to everyone. FedAccounts would be a public option for the unbanked and underbanked while also providing substantial benefits to businesses and our economy as a whole.

FedAccounts would provide the following features to all Americans, as well as American businesses: no fees or minimum balances; the same interest rate that commercial banks get; and no interchange fees for debit card payments. Also, payments between FedAccounts would clear in real time, and there would be no need for federal deposit insurance, as FedAccount balances would be sovereign and nondefaultable. The lack of fees and minimum balances would remove obstacles that exclude millions of Americans from our financial system, and the perks of central banking would greatly increase the cost and efficiency of transactions for businesses.

This report details the FedAccounts proposal and its benefits. It also discusses the merits of FedAccounts over other reform proposals like narrow banking, postal banking, and cryptocurrencies.