Understanding the Fed: Five Things You Should Know About Payment Systems

February 23, 2026

David Pendered Senior Content and Publishing Specialist

collage of currency, credit, checks, and the Fed

The Federal Reserve is the central bank of the United States. But that doesn’t mean it’s the kind of bank where you get cash from an ATM, borrow money for a home, or keep a safe deposit box.

As the central bank, the Federal Reserve is tasked with a variety of responsibilities that, as a whole, promote the health, safety, and prosperity of the US economy and financial system. While commercial banks provide financial services directly to the public, the Fed provides services to commercial banks. That’s why some people describe the Fed as the bank for banks.

The Federal Reserve System is a nonpolitical institution that includes 12 independent regional Reserve Banks, located around the country, as well as the Federal Reserve Board of Governors in Washington, DC. Each Reserve Bank brings unique data and perspectives from their regions to the Board of Governors, so the economic experiences of all Americans are represented in the formation of monetary policy. The Fed performs five main functions. They include

setting the nation’s monetary policy;
promoting financial system stability;
supervising and regulating financial institutions;
fostering a safe, efficient, and accessible payments system; and
promoting consumer protection and community development.

Today, we’re highlighting payment and settlement systems, and five key things we think everyone should know about this work. Keep an eye out for snapshots of the other functions. We’ll link them to the list above as they’re available.

1. The Federal Reserve’s role in payment systems

Every financial transaction people make involves the Federal Reserve. No matter the size or type of payment—from cash paid to a babysitter, to checks written to a grocer, to debit card transactions and interbank digital transfers—they all are facilitated by the Fed.

The payment system encompasses all forms of payments: coins and Federal Reserve notes; checks deposited by banks and collected by Federal Reserve Banks; automated clearinghouse transactions of small-value credit and debit transactions; and larger-value payments processed by the real-time, electronic Fedwire Funds and Fedwire Securities Service.

Settlement systems are how payments are transferred from the account of the payer to the account of the payee. The Fed constantly researches the designs, risks, technological innovations, and usage trends of settlement systems to ensure they evolve and continue to meet the needs of those who rely on them. Lali Shaffer, director of the Atlanta Fed’s Payments Forum, says “We provide relevant research through data driven analysis and collaborative efforts with industry partners. The research serves to inform our leaders, policymakers, and innovators during their decision-making processes.”

Collectively, these efforts promote the stability of the financial system and economy by supporting the smooth and efficient operations of payments.

2. The Fed’s role in maintaining a reliable US currency

The United States has a lot of paper money in circulation and 99 percent is Federal Reserve notes, commonly called bills. The Fed does not print notes but is responsible for ensuring that an adequate supply of notes circulate in the system. The Fed also combats counterfeiting to maintain confidence in the notes. To do all this, the Fed’s Board of Governors collaborates with partners including the Reserve Banks, US Department of the Treasury, the US Secret Service, and Treasury’s Bureau of Engraving and Printing.

The task of managing notes is significant. The volume and value of currency in circulation have risen every year since 1997. On the last day of 2024, 55.4 billion notes were in circulation, up from 18.6 billion notes at the end of 1997. The value of notes in circulation rose during that period to $2,322.9 billion from $458 billion. The Fed estimates that as much as half the value of US currency circulates abroad.

3. The Fed focuses on strategic improvements to the payment system

The Fed works with Congress, the private sector, and public-sector institutions at home and abroad to improve the safety, speed, and efficiency of the payment and settlement systems. One such project is the Fed’s effort to help modernize the business-to-business (B2B) payments system, at home and abroad, to foster a faster, safer, and more efficient payments system. Related to this effort is the Fed’s support for the adoption of a common global “language,” known as ISO 20022, for messaging in payments, cash management reporting, securities, cards, foreign exchange, and trade services. This standards framework is expected to result in greater end-to-end efficiency in domestic and cross-border payments. Another project is implementing the Federal Reserve’s responsibilities under the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act) that was signed into law in July of 2025.

4. The Fed enables faster payments through FedNow Service

Time is money, as the saying goes, and in 2023 the Fed established a service that can transmit money within seconds between accounts at different financial institutions. The FedNow Service addresses the situation of “float,” the time between a deposit and the moment the recipient can access the money. With the FedNow Service, for instance, a homeowner can pay a lawn service through a program at the homeowner’s bank or credit union that will send the payment within seconds to the lawn service’s account at any bank or credit union. As of July 2025, the FedNow Service was offered at more than 1,400 of the nation’s 9,000 banks and credit unions, up from 900 financial institutions at its one-year anniversary in July 2024.

The service responds to the ongoing appetite for faster and instant payments. A recent survey by the Federal Reserve Financial Services of 2,000 US businesses conducted across firm sizes, industries, and payment experience showed 92 percent of businesses use some form of faster payment, such as instant payments, Same Day ACH, or digital wallets. That number is up from 86 percent in the 2024 survey.

5. The Fed plans for the future of payment systems

The Fed is working on multiple fronts to modernize payment systems across the many platforms it oversees.

Traditional forms of transactions remain a central concern for the Fed. One major step to ensure the security of currency is the purchase of the Bank’s next generation of high-speed currency processing equipment, known as NextGen. These machines are to enhance the Fed’s ability to identify and remove damaged and counterfeit currency.

Another focus of attention is check fraud, which has become so rampant that in 2024 the Treasury Department listed it as a previously underrecognized national security threat. The Fed has joined with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to consider ways they could potentially mitigate payments fraud.

The FedNow Service is expected to adapt to user requests for services as it attracts more partners. Next are expansions into merchant refunds, account funding, healthcare payments, and small business and marketplace payments, in addition to innovations not yet visible in the broader payment ecosystem.

Want to know more about payments system?

If you’d like to take a deeper dive into the world of payment systems, check out The Fed Explained: What the Central Bank Does, which details the structure, responsibilities, and work of the US central banking system. To learn more about the FedNow Service, visit FedNow Instant Payments.