New developments in large-value payment systems
9 May 2005
The Committee on Payment and Settlement Systems (CPSS) is today publishing the report New developments in large-value payment systems.
The report describes major innovations in the design of large-value payment systems (LVPS) that have occurred since the publication of the report on real-time gross settlement systems in 1997. It analyses how contemporary LVPS work, which external factors affect LVPS design, and the implications of some of the developments for risks and costs.
Whereas the key achievements in the 1990s were speed and safety of payments (with the spread of RTGS systems), the focus since the turn of the century has been to reduce liquidity costs and to provide users with more flexible intraday liquidity management. Interbank payments today settle faster, with a lower amount of liquidity (mainly central bank money), and at a lower cost. In parallel, new systems and arrangements have emerged to meet an expanding demand for cross-border payments.
While certain trade-offs exist between achieving lower risks and achieving lower costs, recent developments in LVPS design allow more flexibility in addressing various risk and cost trade-offs than previously available in traditional financial architectures. Central banks have continued to seek a balance between more stringent risk controls and the need for systems to be cost-efficient.
The analysis in the report shows that the complexity of trade-offs between risks and costs implies a wide range of possibilities for the design of an LVPS. There is therefore no single solution fitting all markets and all participants' preferences. Hence, the report does not prescribe the adoption of any specific feature or design element introduced in a given LVPS. Owners should take these considerations into account when deciding on the features of their system within the policy standards set by the relevant authorities.
The report was produced for the CPSS by a working group chaired by Daniel Heller of the Swiss National Bank. The CPSS serves as a forum for central banks to monitor and analyse developments in payment and settlement arrangements and to consider related policy issues. The chairman of the CPSS is Tommaso Padoa-Schioppa, a Member of the Executive Board of the European Central Bank. The CPSS secretariat is hosted by the BIS.