Wholesale payments: questioning the market-failure hypothesis [An article from: International Review of Law & Economics]

by G. Selgin

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This digital document is a journal article from International Review of Law & Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

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The 1990s witnessed a major worldwide change in the management of ''wholesale'' payments. Insisting that traditional Deferred Net Settlement (DNS) payment systems involve serious externalities, monetary authorities legally restricted such systems and compelled or encouraged their replacement by Real-Time Gross Settlement (RTGS) systems. The present paper argues that market failure arguments used to justify these reforms reflect a fundamental misunderstanding of the manner in which traditional DNS systems generate and assign intraday credit risk. A proper understanding of the nature and role of intraday credits in deferred net settlement supplies no market-failure rationale for government interference with traditional payments systems, suggesting that recent reforms are at most justified on second-best grounds only.

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