A proposal for a decentralized liquidity savings mechanism with side payments
In most countries, the central bank provides the medium to physically settle the smallest payments (cash) and the means to electronically settle the largest payments, which typically are wholesale payments between banks. For the latter purpose the central bank usually operates a system through which...
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| Main Authors: | , , , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2018
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/sis_research/4108 https://ink.library.smu.edu.sg/context/sis_research/article/5111/viewcontent/proposal_dlsms_r3.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | In most countries, the central bank provides the medium to physically settle the smallest payments (cash) and the means to electronically settle the largest payments, which typically are wholesale payments between banks. For the latter purpose the central bank usually operates a system through which banks can settle payments in central bank money. Historically, interbank payments were settled via (end of day) netting systems, but as volumes and values increased central banks became worried about the risks inherent in deferred net settlement systems, so most central banks opted for the implementation of a Real Time Gross Settlement (RTGS) system. With RTGS, payments are processed individually, immediately and with finality during operational hours. This eliminates settlement risk and the potential unwinding of payments, at the cost of increased need for liquidity provision by participants. |
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