I. Introduction

March 2, 2005

On this late winter’s day, there is no obvious connection among the four. Nina is an 84-year-old great-grandmother in Denver; Patricia owns a chain of computer-repair shops in New Orleans; Andy is a proud, young father in Jefferson City, Mo.; and Vince is a U.S. Army first lieutenant on duty in Kuwait. As they go about their business today, however, one link does emerge.

Nina had been receiving her Social Security check in the mail at the beginning of every month for nearly 20 years. Then, less than a year ago, as Nina’s health began to decline, her grandson convinced her that switching to direct deposit would reduce some stress in her life. This morning, as a foot of freshly fallen snow greets Denverites, she calls her grandson to thank him for his advice. Rather than making the difficult trek to the bank to deposit her check, Nina sits comfortably at home while her money sits safely and securely in her account.

In New Orleans, Patricia is caught in a more desirable blizzard of sorts. Her computer-repair business is booming. She arrives at her office at 6:30 a.m. to prepare for a meeting with her five store managers at 8. On the agenda is the subject of adding to staff to keep up with customer demand. Ten minutes before her managers arrive, Patricia realizes she still has enough time to complete another task on her jam-packed to-do list. Her quarterly federal tax payment is due later in the week. She logs on to the Electronic Federal Tax Payment System (EFTPS) web site, enters her information and sends instructions to have her payment transferred from her bank account on the due date. With seven minutes remaining before the meeting begins, Patricia steps away to refill her coffee cup.

It costs the government 62 cents more per payment to issue a check rather than pay electronically.

As first-time father Andy enjoys breakfast with his 3-year-old son, Zach, he smiles, seeing how engrossed the boy is playing with his toy cars. It suddenly occurs to Andy that, soon enough, the time will come when Zach will be old enough to do more than merely imagine being behind the wheel. As his dad had done for him, Andy wants to one day help his son pay for his first car. He decides that today is the day to start saving for it by choosing a safe investment with steady growth prospects. Later at work, a colleague recommends a web site to Andy that would enable him to directly purchase U.S. savings bonds and give them to his son when Zach is ready to pick out something he can drive in a lane that’s a bit wider than the kitchen table.

Halfway across the globe, Vince has been leading his platoon through relentless training missions for over a month, in preparation for deployment in Iraq. This afternoon, however, he is able to break away and head into town to purchase a hand-woven Kuwaiti dress for his sister, who will turn 40 later in the month. Before he leaves, Vince first stops by the currency exchange office on the base to obtain Kuwaiti currency. Later, he mails the present from the base post office. For both transactions, Vince uses his Army EagleCash stored-value card, which he had preloaded with funds from his bank account several days earlier.

The Federal Reserve manages an application that offsets debt against payment files, yielding in excess of $20 billion in government delinquent debt to date.

The common thread running through the lives of Nina, Patricia, Andy and Vince is perhaps one that only the U.S. Department of the Treasury and the Federal Reserve can fully appreciate. But appreciate it they do. These two formidable organizations are working in tandem to push innovative, electronic mechanisms for government payments, collections and savings options for the public. The Fed’s long-standing relationship as the Treasury’s fiscal agent has taken on extraordinary significance over the past decade, as technological advancements in society have increased the likelihood of the Treasury’s ultimate goal: 100 percent electronic financial transactions. The electronic payment revolution is resulting in improved efficiencies for the federal government, greater convenience for consumers and cost-savings for both parties.

This annual report examines the critical, but little understood, role that the Fed serves for the Treasury and the central role played by the Federal Reserve Bank of St. Louis in particular.

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