Role of Payment and Settlement Systems in Monetary POlicy and Financial Stability

The payment and settlement systems play a core intermediating function and operate as the “plumbing system” for financial markets to help ensure swift, safe and seamless flow of funds from one payment participant to another. Smooth and certain settlement of payments would reduce risks, including exchange rate risk, and improve liquidity management. In turn, this will not only enhance transaction certainty for the financial institutions, but also facilitate timely availability of critical information for supervisors and monetary authorities. Concurrently, prompt and smooth financial settlements should further enhance the effectiveness of monetary policy transmission and the overall conduct of monetary policy. Efficient payment and settlement systems are, therefore, critical infrastructures to the success of attaining monetary and financial stability.The objective of this study is to assess payment and settlement systems standards across the SEACEN economies, both on the retail and wholesale levels as well as to identify key challenges and issues to improve the efficiency of the payment and settlement systems of the SEACEN economies. It also seeks to identify areas where payment and settlement systems directly influence domestic monetary and financial stability and assess efforts to further develop and improve payment and settlement systems across the region. Lastly, the study also looks at regional cooperation in the area of payment and settlement systems involving SEACEN economies to evaluate the outcomes and shortcomings and identify key areas of cooperation going forward.