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Payment systems, inside money and financial intermediation

  • Merrouche, Ouarda
  • Nier, Erlend

This paper assesses the impact of introducing an efficient payment system on the amount of credit provided by the banking system. Using payment system reforms in Eastern European countries over the 1995–2005 period as a natural experiment, we find evidence that payments reforms were an important precondition for the credit boom observed in our sample countries. We also find that payment system reforms led to a shift away from cash (outside money) and towards demand deposits (inside money) as a medium of exchange and that this in turn enabled an expansion of credit in the sample countries. These findings have important implications for our understanding of financial intermediation, highlighting the nexus between banks’ role as providers of payment services and as providers of credit.

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File URL: http://www.sciencedirect.com/science/article/pii/S1042957312000034
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Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 21 (2012)
Issue (Month): 3 ()
Pages: 359-382

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Handle: RePEc:eee:jfinin:v:21:y:2012:i:3:p:359-382
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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