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Payments Systems, Liquidity, Collateral, and Central Banking

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  • Hyung Sun Choi

    (Kyung Hee University)

Abstract

A monetary model is constructed to explore the risk-sharing role of gross settlement as a determinant of money demand for consumption in a credit economy. Due to a deferred payment system, the costs of gross and net settlement are sensitive to the nominal interest rate. Gross settlement may dampen a consumption loss against interest-rate risk arising from inflation by acquiring additional cash from a financial market. Hence, it is optimal for the government to influence inflation and to drive net settlement out of a payment system. For payment policy, the optimal collateral requirement ratio is one whereas for monetary policy the optimal money growth rate is infinity. Payment policy can be a useful alternative to monetary policy.

Suggested Citation

  • Hyung Sun Choi, 2021. "Payments Systems, Liquidity, Collateral, and Central Banking," Korean Economic Review, Korean Economic Association, vol. 37, pages 65-84.
    • Handle: RePEc:kea:keappr:ker-20210101-37-1-03
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    References listed on IDEAS

    as
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    7. Hyung Sun Choi, 2018. "Inflation Risk, Settlement Cycles, and Monetary Policy," Korean Economic Review, Korean Economic Association, vol. 34, pages 267-282.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Payments Systems; Liquidity; Collateral; Central Banking;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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