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Private payment systems, collateral, and interest rates

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  • Charles Kahn

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Abstract

Recent developments in private payments arrangements, particularly at the wholesale level, (including recent innovations in China) challenge central banks’ longstanding monopoly on the provision of the ultimate means of settlement for financial transactions. This paper examines competition between public payments arrangements and private intermediaries, and the effect on central banks’ role in monetary policy. Central to the issue is the role of collateral both as a requirement for participation in central bank sponsored payments arrangements and as the backing for private intermediary arrangements. The presence of private systems serves as a check on the ability of a monetary authority to tighten monetary policy. Copyright Springer-Verlag 2013

Suggested Citation

  • Charles Kahn, 2013. "Private payment systems, collateral, and interest rates," Annals of Finance, Springer, vol. 9(1), pages 83-114, February.
  • Handle: RePEc:kap:annfin:v:9:y:2013:i:1:p:83-114
    DOI: 10.1007/s10436-011-0186-6
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    File URL: http://hdl.handle.net/10.1007/s10436-011-0186-6
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    References listed on IDEAS

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    1. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    2. Kahn, Charles M. & Roberds, William, 2001. "The CLS bank: a solution to the risks of international payments settlement?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 191-226, June.
    3. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    4. Sargent, Thomas J & Wallace, Neil, 1982. "The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1212-1236, December.
    5. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    6. Florian Heider & Marie Hoerova, 2009. "Interbank Lending, Credit-Risk Premia, and Collateral," International Journal of Central Banking, International Journal of Central Banking, vol. 5(4), pages 5-43, December.
    7. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
    8. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
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    Citations

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    Cited by:

    1. M. Peiris & Alexandros Vardoulakis, 2015. "Collateral and the efficiency of monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 579-603, August.
    2. 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.

    More about this item

    Keywords

    Payment systems; Collateral; Monetary policy; Inside money; E52; E58; G21; G28;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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