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Payment systems efficiency, policy approaches, and the role of the central bank

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  • Khiaonarong, Tanai

Abstract

Central bank spending on the operation of inter-bank funds transfer systems may range from below one million to nearly a billion US dollars annually.This paper examines how such costs are incurred and recovered to pursue payment systems efficiency in different countries and under alternative policy approaches.The key findings are as follows.First, strong scale economy effects were found, with unit costs comparatively lower in retail than large-value payment services, while subsidisation was also evident in a survey of thirty-one payment systems.Second, the minimalist approach was more efficiency enhancing than the competitive and public service policy alternatives, due to higher cost-reducing effects, stronger private sector involvement, and the avoidance of the central bank's conflicting role as regulator and service provider in the payments system.And third, regulatory and financial innovations, in addition to technological means, are found to be equally important policy tools that the central bank may adopt to improve the technical and economic efficiency of payment systems.

Suggested Citation

  • Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Bank of Finland Research Discussion Papers 1/2003, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2003_001
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    References listed on IDEAS

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