Real-Time Gross Settlement and Hybrid Payment Systems: A Comparison

27 Pages Posted: 19 May 2005

Date Written: March 2005

Abstract

This paper contrasts Real-Time Gross Settlement and hybrid payment systems that are based on payment offset, using a two-period, multi-bank model. The comparison is performed according to two criteria: liquidity needs and speed of settlement. We assume that the existence of a payment is common knowledge but that the specific degree of time-criticality of a payment is the private information of the bank sending the payment. Hybrid payment systems are shown to outperform Real-Time Gross Settlement when payments are offset in the first period and when they are offset in both periods. This suggests that in a hybrid system, the offsetting facility should be in operation all day, or, at the very least, for some time after the system opens in the morning. A system in which the offsetting facility was only switched on late in the day would not necessarily be preferred to Real-Time Gross Settlement. These results are shown to be robust to changes in the transparency of the central queue of payments awaiting offset. However, this robustness may not hold with different forms of information asymmetry.

Suggested Citation

Willison, Matthew, Real-Time Gross Settlement and Hybrid Payment Systems: A Comparison (March 2005). Bank of England Working Paper No. 252. Available at SSRN: https://ssrn.com/abstract=724042 or http://dx.doi.org/10.2139/ssrn.724042

Matthew Willison (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
277
Abstract Views
1,861
rank
115,506
PlumX Metrics