Understanding intraday credit in large-value payment systems

Ruilin Zhou ()

Economic Perspectives, 2000, vol. 25, issue Q III, 29-44

Abstract: This article explains how large-value payment systems work, using either gross or net settlement. The author discusses risk control in a real-time gross settlement system and analyzes the pricing of credit to provide intraday liquidity. She argues for distinguishing between consumption/investment debt and payment debt. A theoretical model suggests that, under the assumption that there are no opportunities for intraday optimization of consumption and production, the risk-free rate on intraday payment credit should be zero. This is because the cost of intraday liquidity is a transaction cost of the underlying goods/assets trade and, thus, should be minimized.

Keywords: Payment systems; Credit; Debt; Liquidity (Economics) (search for similar items in EconPapers)
Date: 2000
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