IDEAS home Printed from https://ideas.repec.org/a/eee/jfinin/v21y2012i3p359-382.html
   My bibliography  Save this article

Payment systems, inside money and financial intermediation

Author

Listed:
  • Merrouche, Ouarda
  • Nier, Erlend

Abstract

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.

Suggested Citation

  • Merrouche, Ouarda & Nier, Erlend, 2012. "Payment systems, inside money and financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 21(3), pages 359-382.
  • Handle: RePEc:eee:jfinin:v:21:y:2012:i:3:p:359-382
    DOI: 10.1016/j.jfi.2012.01.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042957312000034
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, April.
    2. Gale, Douglas & Yorulmazer, Tanju, 2013. "Liquidity hoarding," Theoretical Economics, Econometric Society, vol. 8(2), May.
    3. Berlin, Mitchell & Mester, Loretta J, 1999. "Deposits and Relationship Lending," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 579-607.
    4. Marianne Bertrand & Antoinette Schoar & David Thesmar, 2007. "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985," Journal of Finance, American Finance Association, vol. 62(2), pages 597-628, April.
    5. Scott Roger, 2009. "Inflation Targeting at 20 - Achievements and Challenges," IMF Working Papers 09/236, International Monetary Fund.
    6. Enrica Detragiache & Thierry Tressel & Poonam Gupta, 2008. "Foreign Banks in Poor Countries: Theory and Evidence," Journal of Finance, American Finance Association, vol. 63(5), pages 2123-2160, October.
    7. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    8. Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo, 2004. "The Great Depression and the Friedman-Schwartz hypothesis," Working Paper Series 326, European Central Bank.
    9. Hugh Rockoff, 1993. "The Meaning of Money in the Great Depression," NBER Historical Working Papers 0052, National Bureau of Economic Research, Inc.
    10. Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2003. "The Great Depression and the Friedman-Schwartz hypothesis," Proceedings, Federal Reserve Bank of Cleveland, pages 1119-1215.
    11. Douglas W. Diamond & Raghuram G. Rajan, 2006. "Money in a Theory of Banking," American Economic Review, American Economic Association, vol. 96(1), pages 30-53, March.
    12. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    13. Kenneth Rogoff, 1998. "Blessing or curse? Foreign and underground demand for euro notes," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 261-303, April.
    14. Agenor, Pierre-Richard & Aizenman, Joshua & Hoffmaister, Alexander W., 2004. "The credit crunch in East Asia: what can bank excess liquid assets tell us?," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 27-49, February.
    15. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, February.
    16. International Monetary Fund, 1994. "The Payments Systems Reforms and Monetary Policy in Emerging Market Economies in Central and Eastern Europe," IMF Working Papers 94/13, International Monetary Fund.
    17. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    18. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Felipe Restrepo & Lina Cardona Sosa & Philip E. Strahan, 2017. "Funding Liquidity without Banks: Evidence from a Shock to the Cost of Very Short-Term Debt," NBER Working Papers 23179, National Bureau of Economic Research, Inc.
    2. Pierpaolo Iannozzi, 2013. "Strumenti di pagamento come leva di valorizzazione delle reti: l’esperienza delle fuel cards," ECONOMIA E DIRITTO DEL TERZIARIO, FrancoAngeli Editore, vol. 2013(3), pages 393-420.

    More about this item

    Keywords

    Payment systems; Money demand; Credit supply;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:21:y:2012:i:3:p:359-382. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622875 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.