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On Shadow-Prices of Banks in Real-Time Gross Settlement Systems

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  • Rodrigo Andrés de Souza Peñaloza

Abstract

I model the functioning of real-time gross settlement systems for large-value interbank transfers as a linear programming problem in which queueing arrangements, splitting of payments, Lombard loans, and interbank credit exposures arise as primal solutions. Then I use the dual programming problem associated with the maximization of the total flow of payments in order to determine the shadow-prices of banks in the payment system. We use these shadow-prices to set personalized intraday monetary policies such as reserve requirements, availability of Central Bank credit to temporarily illiquid banks, extension of intraday interbank credit exposures, etc., so as to make the payment system more efficient and less costly in terms of systemic liquidity. The dual approach shows us how to make banks correctly internalize the intraday network externalities they create in the real-time gross settlement system and provides an objective standard for the daily microprudential surveillance of the payment system.

Suggested Citation

  • Rodrigo Andrés de Souza Peñaloza, 2003. "On Shadow-Prices of Banks in Real-Time Gross Settlement Systems," Working Papers Series 71, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:71
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    References listed on IDEAS

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    Cited by:

    1. Peñaloza, Rodrigo, 2009. "A duality theory of payment systems," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 679-692, September.

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