Morgan Ricks is Professor of Law at Vanderbilt University Law School; John Crawford is Professor of Law at UC Hastings College of Law; and Lev Menand is a lawyer in New York. This post is based on their recent paper.
Among the perks of being a bank is the privilege of holding an account with the central bank. Unavailable to individuals and nonbank businesses, central bank accounts pay higher interest than ordinary bank accounts. Payments between these accounts clear instantly; banks needn’t wait days or even minutes for incoming payments to post. On top of that, central bank accounts consist of base money, meaning they are fully sovereign and nondefaultable no matter how large the balance. By contrast, federal deposit insurance for ordinary bank accounts maxes out at $250,000—a big problem for institutions with large balances.
Our paper recently posted on SSRN, A Public Option for Bank Accounts (or Central Banking for All), argues that restricting central bank accounts to an exclusive clientele (banks) is no longer justifiable on policy grounds if indeed it ever was. We propose giving the general public—individuals, businesses, and institutions—the option to hold accounts at the central bank, which we call FedAccounts. FedAccounts would offer all the functionality of ordinary bank accounts with the exception of overdraft coverage. They would also have all the special features that banks currently enjoy on their central bank accounts, as well as some additional, complementary features. Government-issued physical currency is already an open-access resource, available to all; the FedAccount program would merely do the same for nonphysical or “account” money.
