The Payment System and Monetary Policy

IMF Policy Discussion Papers, May 1, 1998

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The Payment System and Monetary Policy

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Bibliographic details

• Authors: Omotunde E. G. Johnson
• Published: May 1, 1998
• Series: IMF Policy Discussion Papers
• DOI: https://doi.org/10.5089/9781451973389.003

Summary and core problem

• Achieving the primary objective of price stability without unduly compromising the operational efficiency of the payment system constitutes a major problem for central banks.
• Routine monetary policy presumes a given institutional and technological framework, including aspects of the payment system.
• Such a monetary policy concerns itself with intraday and interday credit for payments settlements and with float.
• Liquidity shocks and panics sometimes pose an additional challenge.
• In recent years, major and rapid institutional and technological changes in the payment system (mainly to lower risks and augment operational efficiency) have affected the monetary policy decision-making process, particularly in the short run.

Subject areas and keywords

• Subject: Banking, Central bank credit, Central banks, Credit, Financial markets, Large value payment systems, Monetary operations, Money, Payment systems
• Keywords: A. central bank credit Policy, central bank, Central bank credit, central bank credit policy, Credit, credit facilities, Global, Large value payment systems, market, market operation, Monetary operations, monetary policy, monetary policy point of view, monetary policy transmission mechanism, money multiplier, payment, payment settlement, payment system, payment system reform, Payment systems, payments organization, PDP, routine monetary policy, settlement purpose

Findings and implications for policy

• Monetary policy implementation interacts directly with payment system design through:
  • intraday and interday credit provision for payment settlements;
  • management of float;
  • responses to liquidity shocks and panics.
• Institutional and technological reforms in payment systems, motivated mainly to lower risks and augment operational efficiency, have tangible short-run effects on monetary policy decision-making.
• Central banks must balance the primary objective of price stability against potential impacts on payment system operational efficiency when framing policy.

Content in this bundle

• The Payment System and Monetary Policy - PPAA/98/4
  • The Payment System and Monetary Policy - PPAA/98/4 (Markdown version)
  • The Payment System and Monetary Policy - PPAA/98/4 (PDF)