The Role of Central Bank Money in Payment Systems by Bank of International Settlements (BIS) - Committee on

By Bank of International Settlements (BIS) - Committee on Payment and Settlement Systems

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Where they accumulate debit balances, members have to pay in funds to CLSB in order to restore their sub-account in that currency to zero by the end of the day. Correspondingly, CLSB makes payouts to members with net long positions. These pay-ins and payouts are made using RTGS systems or their equivalent to transfer funds to and from accounts CLSB holds at the central banks of the currencies concerned. Central bank money is thus used in the funding and defunding process, which is an integral part of the overall CLS settlement process because of the requirement that members start and end each day with zero balances at CLSB.

In other words, the broad objective of having central bank money play a pivotal role in the payment system can be achieved without a specific policy of requiring direct participation. As already noted, it is in fact the case across CPSS countries that in practice most banks, or at least large banks, use accounts at the relevant central bank to settle most large-value payments. 2 there are some significant exceptions already, and in the future there is a possibility that there could be increased tiering.

This reflects the collective decision that high concentrations of such risks should be eliminated or significantly reduced by requiring those systems to settle in a “safe” asset. Likewise, SSS Recommendation 10 states that the assets used to settle the ultimate payment obligations from securities transactions should carry little or no credit or liquidity risk and that, if central bank money is not used, steps must be taken to protect members of the central securities depository from potential losses and liquidity pressures arising from the failure of the settlement institution whose assets are used.

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