Payment Systems, Inside Money and Financial Intermediation

Erlend Nier and Ouarda Merrouche ()

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Abstract: This paper assesses the impact of introducing an efficient payment system on the amount of credit provided by the banking system. Using payment system reforms in Eastern European countries over the 1995-2005 period as a natural experiment, we find evidence that payments reforms were an important precondition for the credit boom observed in our sample countries. We also find that payment system reforms led to a shift away from cash (outside money) and towards demand deposits (inside money) as a medium of exchange and that this in turn enabled an expansion of credit in the sample countries. These findings have important implications for our understanding of financial intermediation, highlighting the nexus between banks' role as providers of payment services and as providers of credit.

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Date: 2012
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Citations: View citations in EconPapers (8)

Published in Journal of Financial Intermediation, 2012, 21 (3), pp.359-382. ⟨10.1016/j.jfi.2012.01.002⟩

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Journal Article: Payment systems, inside money and financial intermediation (2012)
Working Paper: Payment systems, inside money and financial intermediation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01638082

DOI: 10.1016/j.jfi.2012.01.002

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