Understanding intraday credit in large-value payment systems
AbstractThis article explains how large-value payment systems work, using either gross or net settlement. The author discusses risk control in a real-time gross settlement system and analyzes the pricing of credit to provide intraday liquidity. She argues for distinguishing between consumption/investment debt and payment debt. A theoretical model suggests that, under the assumption that there are no opportunities for intraday optimization of consumption and production, the risk-free rate on intraday payment credit should be zero. This is because the cost of intraday liquidity is a transaction cost of the underlying goods/assets trade and, thus, should be minimized.
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Bibliographic InfoArticle provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.
Volume (Year): (2000)
Issue (Month): Q III ()
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