IDEAS home Printed from https://ideas.repec.org/p/dnb/dnbwpp/099.html
   My bibliography  Save this paper

A tale of the water-supplying plumber: intraday liquidity provision in payment systems

Author

Listed:
  • Elisabeth Ledrut

Abstract

This paper provides an overview of the literature on intraday credit in payment systems to date and explores the dilemma central banks face when deciding on their intraday credit policies. On the one hand, any strategy in which the costs of liquidity are not fully borne by payment system participants can be expected to yield an inefficient outcome . Participants would consume more credit than optimal and, due to moral hazard, central banks would be faced with larger amounts at risk and a greater risk of default than would otherwise be the case. On the other hand, a strategy making intraday liquidity expensive increases the risk of payment delays and payment system gridlocks, due to participants limiting their intraday borrowings and delaying the sending of payments, which can hamper the well functioning of the payment system. This could further influence the allocation of real resources, as achieving economic efficiency requires intraday credit to be provided without cost, even accounting for default risk and moral hazard. Recent developments in payment system design, which have improved the turnover ratio of reserves, have reduced the stringency of the dilemma in a number of countries.

Suggested Citation

  • Elisabeth Ledrut, 2006. "A tale of the water-supplying plumber: intraday liquidity provision in payment systems," DNB Working Papers 099, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:099
    as

    Download full text from publisher

    File URL: https://www.dnb.nl/binaries/Working%20Paper%2099_tcm46-146756.pdf
    Download Restriction: no

    Citations

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


    Cited by:

    1. Marc Pröpper & Iman van Lelyveld & Ronald Heijmans, 2008. "Towards a Network Description of Interbank Payment Flows," DNB Working Papers 177, Netherlands Central Bank, Research Department.
    2. Ronald Heijmans, 2009. "Simulations in the Dutch interbank payment system: A sensitivity analysis," DNB Working Papers 199, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    large-value payment system; intraday credit; liquidity.;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:dnb:dnbwpp:099. 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: (Rob Vet). General contact details of provider: http://edirc.repec.org/data/dnbgvnl.html .

    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.

    We have no references for this item. You can help adding them by using 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.