Collateral Policy in a World of Round−the−Clock Payment

This paper examines competition between private and public payments settlement systems, and examines the consequences of round−the−clock private payments arrangements on the competitiveness of public systems. Central to the issue is the role of collateral both as a requirement for participation in central bank sponsored payments arrangements and as the backing for private intermediary arrangements. The presence of private systems serves as a check on the ability of a monetary authority to tighten monetary policy. Round−the−clock systems are an example of a collateralsaving innovation that further pressures central bank pre−eminence in payments settlement. Published: October, 2009 URL: http://www.business.illinois.edu/Working_Papers/papers/10−0100.pdf Collateral Policy in a World of Round-the-Clock Payment Charles M. Kahn Department of Finance University of Illinois at Urbana-Champaign current version: October, 2009