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Payment Systems, Inside Money And Financial Intermediation

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Executive Summary

The authors assess the impact of introducing an efficient payment system on financial intermediation. Two channels are investigated. Innovations in wholesale payments technology enhance the security and speed of inside money as a payment medium for customers and therefore affect the split between holdings of cash (outside money) and holdings of deposits (inside money). Second, innovations in wholesale payments technology help establish well-functioning interbank markets for end-of-day funds. This reduces the need for banks to hold excess reserves and thus helps credit creation.

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