Policy in International Payment Systems with a Timing Friction

In an international payment system where there are two regulators what form should the optimal policy of the central banks take? In this paper I show that two central banks operating in a non-cooperative way will not have an incentive to achieve the optimal allocation of goods. I further show that this non-cooperative outcome will be supported by a zero intraday interest rate and constant fixed exchange rate. This is in contrast to recent research. Which has shown that a zero intraday interest rate will achieve a social optimum and that the central bank has an incentive to achieve it.