This paper considers the welfare effect of introducing a liquidity-saving mechanism (LSM) in a real-time gross settlement (RTGS) payment system. We study the planner's problem to get a better understanding of the economic role of an LSM and find that an LSM can achieve the planner's allocation...

Households and businesses in the U.S. prefer to use check payment over less costly, electronic means of payment. Earlier studies have focused on check “float,” i.e., the time lag between receipt and clearing, as a potential explanation for the continued popularity of checks. An underlying...

We study the incentives of participants in a real-time gross settlement system with and without the addition of a liquidity-saving mechanism (queue). Participants in our model face a liquidity shock and different costs for delaying payments. They trade off the cost of delaying a payment against...

An extensive literature in monetary theory has emphasized the role of money as a record-keeping device. Money assumes this role in situations where using credit would be too costly, and some might argue that this role will diminish as the cost of information and thus the cost of credit-based...

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 the risk of the portfolio under net settlement. By modeling the trading economy that generates the...

An extensive literature in monetary theory has emphasized the role of money as a record-keeping device. Money assumes this role in situations where using credit would be too costly, and some might argue that this role will diminish as the cost of information, and thus the cost of credit-based...

Households and businesses in the United States prefer to use check payment over less costly, electronic means of payment. Earlier studies have focused on check "float," that is, the time lag between receipt and clearing, as a potential explanation for the continued popularity of checks. An...

A recent innovation in large-value payments systems has been the design and implementation of liquidity-saving mechanisms (LSMs), tools used in conjunction with real-time gross settlement (RTGS) systems. LSMs give system participants, such as banks, an option not offered by RTGS alone: they can...