The Economics of Large-value Payments and

Central banks have over the past few years devoted considerable resource to the study of the economics of payments. In parallel, this field has begun to establish itself as a new subject for scholarly research, drawing in academic students and researchers. To date, however, there has been little attempt to draw together the key insights gained from this growing body of research. This volume seeks to offer just such a synthesis. It charts the frontier of our knowledge to date and puts it in the context of a comprehensive overview of the policy issues faced by central banks in this sphere. In particular, it explores central banks' roles in payment systems; the risks on which central banks focus in their oversight activities; and the challenges central banks face as the payments and settlement landscape evolves. The economics of payments is a multi-disciplinary field, taking in branches of economics such as monetary theory, search theory, game theory and industrial organisation. It also draws on techniques from network theory and makes extensive use of simulation studies to model complex interactions between payment system members. For each of the topics covered, this volume highlights some of the most influential works in the literature. The volume also draws heavily on empirical insights, in particular offering an historical context to central banks' involvement in payment systems.

Mark Manning joined the Financial Stability Directorate of the Bank of England in 2002, after several years working as a fund manager in the City of London. Since joining the Bank, Mark has specialised in policy and research in payments, clearing and settlement, co-authoring several research papers and articles in this area and participating in various international policy and working groups. Mark is currently on secondment from the Bank of England at the Reserve Bank of Australia, where he heads the Payments System Stability section of the Payments Policy Department. Mark holds Masters degrees in Economics and Finance, from University College London and London Business School, respectively. Dr Erlend Nier holds a PhD in Economics from the London School of Economics. He joined the Bank of England in 2001 and held a position as Research Manager in the Bank's Financial Stability Directorate. During his time at the Bank, Erlend Nier has led research and policy work on a range of financial stability issues, including capital and liquidity standards for banking firms, payment system design, and linkages between financial stability and monetary operations. Erlend Nier's current position is as Senior Financial Sector Expert with the IMF's Monetary and Capital Market's Department, on secondment from the Bank of England.
Dr Jochen Schanz holds a PhD in Economics from the European University Institute. He has worked as an economist for an investment bank before joining the Bank of England as an economist in 2005. During his time at the Bank, he has worked on market infrastructure questions, focussing on the link between system design, banks' short-term liquidity management, and systemic risk. His interests include regulation of financial markets and governance of firms providing infrastructure services.

List of Figures	p. xii
List of Tables	p. xiv
List of Boxes	p. xv
List of Contributors	p. xvii
Introduction	p. 1
Money, banking and payments: historical evolution and the role of the central bank	p. 2
Sources of systemic risk in payments and settlement	p. 5
Governance and regulation of payment and settlement systems	p. 9
Future policy challenges for central banks	p. 11
Money, banking and payments: historical evolution and the role of the central bank	p. 15
The foundations of money and payments	p. 17
The origins of money and payments	p. 17
The emergence of banks, including the early central banks	p. 22
Payments and monetary and financial stability	p. 30
Central-bank money as the ultimate settlement asset	p. 31
Payments and financial stability	p. 34
The value of payment systems to the real economy	p. 36
The broadening and deepening of financial market infrastructure and implications for central banks' financial stability objectives	p. 41
Sources of systemic risk in payment and settlement systems	p. 47
System design and sources of credit risk in large-value payment and settlement systems	p. 51
Deferred net settlement in large-value payment systems	p. 51
Managing credit risk in DNS systems	p. 58
Real-time gross settlement in large-value payment systems	p. 62
The choice of settlement model: drivers of the widespread adoption of RTGS in large-value payment systems	p. 64
Liquidity risk in large-value payment systems	p. 68
Liquidity and the incentive to delay payments	p. 69
Central banks' provision of liquidity in payment systems: the theory	p. 79
Central banks' intraday credit policies in practice	p. 84
Reducing the opportunity cost of collateralized intraday credit	p. 88
Mechanisms to promote efficient recycling of liquidity	p. 90
Hybrid payment-system design	p. 91
Optimal channelling of payments	p. 98
Managing systemic risk in the clearance and settlement of foreign-exchange, securities and derivatives transactions	p. 102
Foreign-exchange settlement risk	p. 103
Settlement risk in securities settlement systems	p. 108
Management of replacement risk in clearinghouses	p. 113
Other sources of systemic risk: operational and business risk	p. 122
Operational risk	p. 122
Business risk	p. 134
Public-policy intervention in payment and settlement systems	p. 137
Market failures in payment and settlement systems	p. 139
Market failures: implications for systemic risk	p. 139
Market failures: implications for efficiency	p. 141
Ownership, governance and regulation of payment systems	p. 143
Public ownership and subsidization of payment systems	p. 144
Targeted intervention ('oversight')	p. 147
Mutual ownership and integration of external stakeholders	p. 149
Which authority should intervene?	p. 155
Central-bank oversight of payment and settlement systems in practice	p. 158
Oversight objectives	p. 158
Implementation of oversight	p. 161
Future policy challenges for central banks	p. 167
Banks providing infrastructure services	p. 169
The provision of wholesale payments services	p. 170
Risks in tiered structures	p. 178
Other firms providing payment and settlement infrastructure	p. 184
The evolving infrastructure landscape and challenges for central banks	p. 187
Forces for change in the infrastructure landscape	p. 187
Implications for financial stability and central bank oversight	p. 196
Implications for the implementation of monetary policy	p. 199
Directions for future research in large-value payment systems	p. 201
Glossary	p. 204
References	p. 205
Index	p. 219
Table of Contents provided by Ingram. All Rights Reserved.

What is included with this book?

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.

FREE SHIPPING

Rent More, Save More! Use code: BBRENTAL

5% off 1 book, 7% off 2 books, 10% off 3+ books

The Economics of Large-value Payments and Settlement

Summary

Author Biography

Table of Contents

Supplemental Materials