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F ederal







Circular No. 73-201
August 1^, 1973

To All Banks
in the Eleventh Federal Reserve District:

Enclosed for your information is a copy of a press release dated
August 8, 1973j concerning a joint announcement by the Board of Governors
of the Federal Reserve System, the Treasury Department, and the Air Force
of a program, to be initiated this fall, to determine the feasibility of
automating the distribution and payment of Government payrolls.

While con­

siderable study in the project remains to be accomplished, this report may
be of interest to you in view of the new paperless entry technology which
is undergoing development within the banking industry.
Yours very truly,
P. E. Coldwell

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (




For immediate release

August 8, 1973

The U. S. Air Force, the Treasury and the Federal Reserve will cooperate
this fall in an experiment to determine the feasibility of automating the dis­
tribution and payment of government payrolls.
The program was announced jointly today by the Board of Governors of
the Federal Reserve System, the Treasury and the Air Force.

The program will

provide information for assessing the outlook for substantially reducing the
number of individual checks issued in making government payroll payments.
Total check usage now comes to some 26 billion items a year of which 750 mil­
lion are Treasury checks.

Total check volume is growing at a rate that will

approximately double each decade.
The Federal Reserve is introducing equipment and technology to reduce
dependence on checks for making money transfers, by substituting electronic
funds transfer.

The objective -- which the experiment announced today will

serve -- is to reduce the overall cost of making payments and to prevent
check volume from becoming so large as to clog and disrupt the nation's pay­
ment system.

The experiment will also further objectives of the Treasury

Department and the Air Force to foster this use of direct deposits of Federal
payments as a means of reducing forgeries and speeding delivery.

The Air

Force has been looking into and developing systems and procedures for simplify­
ing the distribution of its world-wide payrolls and other recurring payments.




In early fall, at dates to be selected, Federal Reserve offices at
Atlanta, Denver, Los Angeles, and San Francisco will collaborate with the Air
Force Accounting and Finance Center at Denver, and with commercial banks in
the three Federal Reserve Districts, in a simulation of paperless distribution
of payroll credits to the commercial banks of personnel enrolled in the
"Checksto Banks" program.
have accounts

At present, where several Air

Force personnel

in one bank, the Air Force sends one check, together

with a

of the amounts involved, and of the names and account numbers to which

pay credits are to be deposited.

In this way, one check can substitute


a number of individual paychecks.

planned experiment will work as follows:
The Air Force will put on a single magnetic tape all


information for payments to participating personnel with
accounts in all banks in an entire Federal Reserve District.

This tape will be sent to a Federal Reserve Bank.


There, the information will be electronically sorted and
delivered to the individual commercial banks involved.


The commercial bank will use the electronically sorted in­
formation to simulate credit to the accounts of military
personnel who have accounts in that bank.

In the two pay periods when the simulation tests are being made,
actualdeposit of the pay of persons participating in the Air
to Banks" program will be made as usual.

Force's "Checks

- 3 -

A c tu a l c o n v e r s io n to a p a p e r - f r e e sy s te m u s in g m a g n e tic ta p e s w i l l
a w a it a n a l y s i s o f r e s u l t s o f th e s im u l a t i o n t e s t s .

A ll p a r t i e s to th e t r a n s ­

a c t i o n p e rf o r m in g o p e r a t i n g f u n c t i o n s - - th e U. S. T r e a s u r y a s t h e s o u rc e o f
t h e fu n d s b e in g t r a n s f e r r e d , th e A ir F o rc e a s d i s b u r s e r o f t h e f u n d s , th e
F e d e r a l R e s e rv e a s th e a g e n cy r e s p o n s i b l e f o r c le a r a n c e o f th e fu n d s t r a n s ­
f e r s , and th e p a r t i c i p a t i n g c o m m e rc ia l b a n k s a s r e c i p i e n t s o f d e p o s i t s - - w i l l
h a v e an o p p o r tu n i ty to a p p r a i s e th e r e s u l t s o f th e t e s t .
I f t h i s j o i n t u n d e r ta k in g p ro v e s a s s u c c e s s f u l a s a n t i c i p a t e d , i t
may form th e b a s i s f o r an e v e n tu a l n a tio n w id e e l e c t r o n i c fu n d s t r a n s f e r
sy s te m f o r th e F e d e r a l G o v ern m en t.



Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102