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Title Payments Systems, Liquidity, Collateral, and Central Banking
Author Hyung Sun Choi (Kyung Hee University)
Volume 37 Number 1
Pages 65-84 
Keywords Payments Systems, Liquidity, Collateral, Central Banking
Abstract A monetary model is constructed to explore the risk-sharing role of gross settlement as a determinant of money demand for consumption in a credit economy. Due to a deferred payment system, the costs of gross and net settlement are sensitive to the nominal interest rate. Gross settlement may dampen a consumption loss against interest-rate risk arising from inflation by acquiring additional cash from a financial market. Hence, it is optimal for the government to influence inflation and to drive net settlement out of a payment system. For payment policy, the optimal collateral requirement ratio is one whereas for monetary policy the optimal money growth rate is infinity. Payment policy can be a useful alternative to monetary policy.
File KER-20210101-37-1-03.pdf
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