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What are the benefits provided by a payment system? What are the tradeoffs in public versus private payment systems and in restricted versus open payments arrangements? Modern payment systems encompass a variety of institutional designs with varying degrees of counterparty protection. We develop a framework that allows for an examination and comparison of payment systems, and specification of conditions leading to their adoption. We relate these conditions to the design of present large-value payment systems (Fedwire, CHIPS, TARGET, etc.). JEL codes: E42, G21 Keywords: payment systems, limited enforcement, settlement risk, tiering., WHEN TRADE IS decentralized, and agents are not completely reliable, collateral is useful for effecting exchange. However, collateral is expensive and can be subject to shortages, temporary or permanent. When [...]

Previous comparative analyses of gross and net settlement have focused on the credit risk of the central counterparty in net settlement arrangements and on the incentives for participants to alter [...]

IT IS WIDELY APPRECIATED that forecasting interest rates is difficult, and the poor quality of forecasts based on the short end of the term structure is at the core of [...]

PROMPTED IN PART BY THE SHARP DECLINE IN M1 VELOCITY in the early 1980s, much recent empirical literature has sought to gauge the usefulness of various measures of the money [...]

We examine whether transactable forms of privately issued, demandable debt are better used as 'banknotes' or 'checks.' The distinction between the two is that a check must be redeemed by the issuing bank with each use whereas a banknote can circulate. We find that the answer to the question depends on the cost of early redemption. If this cost is small, banknotes will not circulate so the question is moot. If this cost is large, incentive problems may prevent the circulation of banknotes. For intermediate values of the early redemption cost, banknotes will be preferred over checks., BY VALUE, MOST MARKETPLACE TRANSACTIONS in the United States are not paid for with government-issued currency or coin, but with privately issued payments media.(1) Familiar examples of such media include [...]

In August 1763, northern Europe experienced a financial crisis with numerous parallels to the 2008 Lehman episode. The crisis affected merchant banks that were funded by short-term credit instead of deposits. We use archival data to show that these 'shadow' banks suffered a sudden loss of funding after the failure of a major bank. The central bank at the hub of the crisis, the Bank of Amsterdam, responded by broadening the range of collateral it accepted. The data also show how this emergency liquidity helped to contain the crisis, by preventing the collapse of at least two other major banks. [ABSTRACT FROM AUTHOR]