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Payment Instruments and Collateral in the Interbank Payment System

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  • Hajime Tomura

    (Graduate School of Economics, University of Tokyo)

Abstract

This paper analyzes the distinction between payment instruments and collateral in the interbank payment system. Given the interbank market is an over-the-counter market, decentralized settlement of bank transfers is inefficient if bank loans are illiquid. In this case, a collat- eralized interbank settlement contract improves efficiency through a liquidity-saving effect. The large value payment system operated by the central bank can be regarded as an implicit implementation of such a contract. This result explains why banks swap Treasury secu- rities for bank reserves despite that both are liquid assets. This paper also discusses if a private clearing house can implement the contract.

Suggested Citation

  • Hajime Tomura, 2014. "Payment Instruments and Collateral in the Interbank Payment System," UTokyo Price Project Working Paper Series 032, University of Tokyo, Graduate School of Economics.
    • Handle: RePEc:upd:utppwp:032
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    Cited by:

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    2. Hyung Sun Choi, 2023. "Payment Systems, Multiple Types of Collateral, Banking, and Collateral Policy," Korean Economic Review, Korean Economic Association, vol. 39, pages 469-493.

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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