It’s time to rethink how we buy things, Greenspan says

WASHINGTON — As the number of checks written in the United States declines and electronic payments by means such as debit cards rise, the nation’s financial industry will need to be flexible and forward thinking in how best to meet the needs of customers, Federal Reserve Chairman Alan Greenspan said Wednesday.

"The challenge is both to have a vision for the future and to be grounded in the realities of the marketplace," Greenspan said in a speech here to a Federal Reserve conference exploring those issues.

Greenspan praised legislation passed by Congress and signed into law by President Bush on Tuesday that allows banks to clear checks electronically, potentially slashing paperwork.

The law, which takes effect in October 2004, will let banks approve digital images of checks rather than physically transporting them between financial institutions. Banks, customers and businesses that still want paper checks could request a substitute check, which has the same legal status as a regular one, to confirm the electronic transfer.

Greenspan said the number of checks written in this country began to decline in the mid-1990s. In contrast, electronic payments have grown substantially and now total about 40 billion per year, he said.

"Overall, the number of electronic payments has increased almost fivefold in two decades, and this year or next may well exceed the number of checks written," Greenspan said.

In his speech, Greenspan did not mention the state of the U.S. economy or discuss the future course of short-term interest rates controlled by the Federal Reserve.

Fed policymakers on Tuesday, in a regular session, decided to hold a key short-term interest rate at a 45-year low of 1 percent, and suggested it could stay at that level for some time.

Greenspan urged banks to participate in a new survey on check usage that the Fed will conduct in 2004, saying fresh data will help the financial industry and the public adjust smoothly to any changes.