Payment Systems, Inside Money and Financial Intermediation

This paper assesses the impact of introducing an efficient payment system on the amount of credit provided by the banking system. Two channels are investigated. First, innovations in wholesale payments technology enhance the security and speed of deposits as a payment medium for customers and therefore affect the split between holdings of cash and the holdings of deposits that can be intermediated by the banking system. Second, innovations in wholesale payments technology help establish well-functioning interbank markets for end-of-day funds, which reduces the need for banks to hold excess reserves. The authors examine these links empirically using payment system reforms in Eastern European countries as a laboratory. The analysis finds evidence that reforms led to a shift away from cash in favor of demand deposits and that this in turn enabled a prolonged credit expansion in the sample countries. By contrast, while payment system innovations also led to a reduction in excess reserves in some countries, this effect was not causal for the credit boom observed in these countries.

Bibliographic Details

Main Authors:	Merrouche, Ouarda, Nier, Erlend
Language:	English
Published:	2010-10-01
Subjects:	ACCESSION COUNTRIES, ACCOUNT MANAGEMENT, ACCOUNTING, ACCOUNTING PRACTICES, AMOUNT OF CREDIT, ASYMMETRIC INFORMATION, BALANCE SHEET, BANK CREDIT, BANK DEPOSITS, BANK FAILURES, BANK LENDING, BANK OF ENGLAND, BANK OF LATVIA, BANK PAYMENTS, BANK REGULATION, BANKING ASSETS, BANKING CRISES, BANKING LAWS, BANKING REFORM, BANKING SECTOR, BANKING SECTOR ASSETS, BANKING SERVICES, BANKING SYSTEM, BANKING SYSTEM ASSETS, BANKING SYSTEMS, BANKS, BARTER, BIASES, BOND, BORROWING, BORROWING COSTS, BUDGET CONSTRAINTS, BUSINESS CYCLES, CASH PAYMENT, CASH PAYMENTS, CENTRAL BANK, CENTRAL BANK BILLS, CENTRAL BANKS, CHECKS, CLEARING HOUSE, COLLATERALIZATION, COMMERCIAL BANKS, CONSOLIDATION, CONSOLIDATIONS, CONSUMPTION EXPENDITURES, CONTROL VARIABLES, CORE DEPOSITS, COST OF CREDIT, COUNTRY DUMMIES, CREDIT ALLOCATION, CREDIT BOOM, CREDIT CRUNCH, CREDIT DECISIONS, CREDIT EXPANSION, CREDIT GROWTH, CREDIT RISKS, CREDIT TRANSFERS, CURRENCY, CURRENCY BOARD, CURRENCY BOARD ARRANGEMENT, CURRENCY COMPOSITION, CURRENCY HOLDING, CURRENCY TRANSACTIONS, CURRENT ACCOUNT, CURRENT ACCOUNTS, DEBT, DEBT LIABILITIES, DEMAND DEPOSITS, DEPENDENT, DEPOSIT, DEPOSITS, DEPRESSION, DESCRIPTIVE STATISTICS, DIRECTED CREDIT, DOMESTIC BANKING, DOMESTIC BANKING SYSTEM, DOMESTIC CREDIT, DOMESTIC CURRENCY, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC POLICY, EESTI PANK, ELECTRONIC FORM, ELECTRONIC PAYMENTS, ELECTRONIC TRANSFERS, EMERGING MARKET, EMERGING MARKET ECONOMIES, ENTREPRENEURS, ERROR TERM, ERROR TERMS, EXPENDITURE, EXPOSURE, FEDERAL DEPOSIT INSURANCE, FEDERAL RESERVE, FEDERAL RESERVE SYSTEM, FINANCIAL INTERMEDIATION, FINANCIAL STUDIES, FOREIGN ASSETS, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN CURRENCY DEPOSITS, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVES, FOREIGN OWNERSHIP, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT OWNERSHIP, GOVERNMENT SECURITIES, GOVERNMENT SECURITIES MARKET, GOVERNMENT SPENDING, GROSS DOMESTIC PRODUCT, GROSS SETTLEMENT, GROSS SETTLEMENT SYSTEM, GROSS SETTLEMENT SYSTEMS, GUARANTEE FUND, HIGH-INCOME COUNTRIES, HOLDING, HOLDINGS, HOUSEHOLDS, HUMAN CAPITAL, IMPORT, INFLATION, INFLATION RATE, INFORMATION ON BORROWERS, INFORMATION TECHNOLOGY, INSTRUMENT, INTERBANK MARKETS, INTEREST RATE, INTEREST RATE CEILINGS, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL SETTLEMENTS, INVESTING, LEGAL FRAMEWORK, LEGISLATION, LIQUID ASSETS, LIQUIDITY, LIQUIDITY MANAGEMENT, LIQUIDITY PREFERENCE, LOAN, LOAN COMMITMENTS, LOAN MONITORING, LOSS-SHARING ARRANGEMENTS, MAKING PAYMENTS, MARKET ECONOMY, MONETARY FUND, MONETARY POLICY, MONETARY STABILITY, MONEY DEMAND, MONEY MARKET, MONEY MARKET OPERATIONS, MONEY SUPPLY, NATIONAL BANK OF HUNGARY, NATIONAL BANK OF SLOVAKIA, NEGATIVE SHOCKS, NET SETTLEMENT, NOMINAL INTEREST RATE, NOMINAL INTEREST RATES, OPEN MARKET, OPEN MARKET OPERATIONS, OPPORTUNITY COST, PAYMENT ORDERS, PAYMENT SERVICES, PAYMENT SYSTEM, PAYMENT SYSTEMS, PAYMENTS SYSTEM, PAYMENTS SYSTEMS, PLEDGES, POLITICAL ECONOMY, PORTFOLIO, PRIVATE BANKS, PRIVATE CREDIT, PRIVATE ENTERPRISES, PRIVATIZATION, PRUDENTIAL SUPERVISION, PUBLIC BANKS, PUBLIC SPENDING, RATE OF GROWTH, REGRESSION ANALYSIS, REPO, REPOS, RESERVE REQUIREMENT, RESERVE REQUIREMENTS, RESERVES, RETURN, ROLE OF BANKS, SECTOR REFORM, SECURITIES, SERIAL CORRELATION, SETTLEMENT, SETTLEMENT PROCEDURE, SETTLEMENT RISK, SETTLEMENT SYSTEM, SETTLEMENT SYSTEMS, SHAREHOLDERS, SOFT BUDGET CONSTRAINT, SOFT BUDGET CONSTRAINTS, SOLVENCY, STRUCTURAL REFORM, STRUCTURAL REFORMS, SUPERVISORY FRAMEWORK, SUPERVISORY POWER, SUPPLY OF CREDIT, SUPPLY SHOCKS, SYSTEMIC RISK, TAX, TERM DEPOSITS, TOTAL DEPOSITS, TRANSACTION, TRANSITION ECONOMIES, TRANSMISSION MECHANISMS, TRANSPORT, TREASURY, TREASURY BILL, TREASURY BILL RATE, UNCERTAINTY, UNION, VALUE PAYMENT SYSTEM,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101013145659 https://hdl.handle.net/10986/3927
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