David Fokke Ihno Folkerts-Landau
Published: 1996
Total Pages: 70
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The explosive growth in the volume of transactions in highly liquid national and international money, derivative, and capital markets during the last ten years -- the so-called commoditization of finance -- has produced a corresponding increase in flows of gross domestic and international payments. These flows are facilitated by an interlocking network of national and international wholesale payment systems that are at the core of the world's major financial systems. It is widely recognized that a disturbance in one of these payment systems -- an operational mishap, the failure of a major counterparty, a liquidity problem in one of the money markets -- could have serious consequences for global trade and finance. Sections II and II of this paper review the nature and the objectives of ongoing and planned payment system reforms in the United States, and major European Union countries. Section IV discusses the impact of these reforms on the financial system, with particular emphasis on the implication for the availability and cost of intraday liquidity in financial markets. Section V examines the impact of the ongoing shift toward real-time, gross settlement payment systems -- the preferrred type of system for wholesale payments -- on liquidity, the relationship among yields of securities of varying liquidity, bid-ask spreads, and payments conventions in securities markets. The concluding section identifies some unresolved issues.