Payments Systems: Theory and Policy

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Abstract
The goal of this paper is to provide a simplified financial framework for examining a number of theoretical and policy issues raised by the existence and operation of interbank payments arragements. To this end, payments arrangements are assumed to be embedded in an exogenous, real sector. The organization of payments activities, including their risks, is examined under increasingly general assumptions about the process of transferring payment from one agent in the nonbank sector to another. The most general framework presented in this paper consists of a multibank economy with trade and bank credit. The framework developed is inteded for the analysis of payments arrangements in which transactions costs, information costs, and capital market imperfections significantly affect behavior.

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