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Intraday two-part tariff in payment systems

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  • Ota, Tomohiro

    () (Bank of England)

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    Abstract

    This paper studies the optimal intraday pricing in payment systems and its impact on banks’ payment behaviour and intraday liquidity management. A model is developed to compare the performance of two different mechanisms to reduce payment delay: a throughput guideline and a tariff that varies over time, and concludes that a linear time-varying tariff achieves a better outcome unless the payment system experiences a system-wide liquidity shock. We show that settlement delay can be socially efficient, contrary to general understanding of the literature, when it reduces the aggregate cost of liquidity. The theoretical model suggests that the tariff eliminates the inefficient settlement delay that does not contribute to lowering the cost, while leaving the socially efficient delay.

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    File URL: http://www.bankofengland.co.uk/publications/workingpapers/wp428.pdf
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    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 428.

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    Length: 37 pages
    Date of creation: 31 May 2011
    Date of revision:
    Handle: RePEc:boe:boeewp:0428

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    Related research

    Keywords: Payment; RTGS; two-part tariff; throughput guideline;

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    1. Olivier Armantier & Jeffrey Arnold & James McAndrews, 2008. "Changes in the timing distribution of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-112.
    2. Hitoshi Matsushima, 2003. "Repeated Games with Private Monitoring: Two Players," CIRJE F-Series CIRJE-F-242, CIRJE, Faculty of Economics, University of Tokyo.
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