Real-Time Gross Settlement and the Costs of Immediacy
30 Pages Posted: 25 Jan 2015
Date Written: November 1999
Abstract
Using a neoclassical monetary model, we investigate the welfare cost of a payment system that operates as a real-time gross settlement (RTGS) system. We illustrate how the cost of such systems does not ultimately derive from factors such as "payments gridlock" but instead from the credit constraints imposed by RTGS. We also investigate the welfare consequences of various approaches to the allocation of daylight credit by central banks. The two most popular approaches, collateralization and charging an administered intraday interest rate, are shown to be effective along some dimensions but flawed in others.
Keywords: payments, money, real-time gross settlement
JEL Classification: E42, G21, N20
Suggested Citation: Suggested Citation
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