Money, debit card, gross-settlement risk, and central banking

Hyung Sun Choi

The North American Journal of Economics and Finance, 2019, vol. 50, issue C

Abstract: A monetary model is constructed to explore the effects of a new source of inefficiency of gross settlement with an operational risk on the choice of cash that is risky to hold and a debit card that is costly to use. During inflation, gross settlement would entail the deposit of a larger amount of money as payments and collaterals for the finality of the settlement process, thereby leading to a consumption loss. The endogenous adjustment between gross and net settlement may alleviate this distortion from inflation. Hence, the optimal monetary policy is to decrease the money supply so as to minimize the cost of theft and transaction costs of a debit card usage.

Keywords: Money; Debit card; Gross-settlement risk; Central banking (search for similar items in EconPapers)
JEL-codes: E42 E44 E50 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818304960

DOI: 10.1016/j.najef.2019.100993

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