In every transaction, the role of central bank money affects. It works especially in a central bank money in the payment system. Here is the explanation about its payment.
The Role of Central Bank Money in the Payment System
The demand to settle in central bank money will differ for each central bank in particular depending on the policies pursued. Clearly, when the currency is not reliable, when there is no price stability, strong demand to settle in central bank money can not be expected. But leaving macroeconomic factors aside, it’s also very important how the structures are built using central bank capital.
How Best Payment System Works
The best payment system design allows for 5 things. First, the settlement of more payments. Second, better earlier. Third, lower liquidity consumption. Fourth, lower risk. And lastly, lower cost. However, there are trade-offs between these five values, indicating that each central bank has to settle on the right balance. Therefore, it depends on the particular circumstances and priorities of each.
If the liabilities of banks were to have different values, a different price list would have to be set for each good or service for each of the payment instruments used. It depends on whether the consumer is paying with the liability of one bank or another. In fact, if there’s no guarantee in currency’s singleness, multiple currencies would exist. In other words, it is a single currency region. Hence, creating a major obstacle to trade or in other words, the common term is single market.
The composite of central and commercial bank money forming a single currency is. And then, an integral function of the monetary system should retain its system. A multiplicity of money issuers retains the strategic advantages in providing creative and effective payment systems. And also, indeed, in providing financial systems in general.
The regulated or licensed character of these issuers. For instance, commercial banks. It is intended to promote their solvency and liquidity to maintain confidence in the currency. And using central bank money in payment systems puts the value of the liabilities of commercial banks. It aims to the test every day by checking their convertibility into the unit of value that is defined.
