Real-time gross settlement and the costs of immediacy

Charles Kahn and William Roberds

No 98-21, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

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: Money; Payment systems (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (3)

Published in Journal of Monetary Economics, April 2001

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