Efficient electronic payment systems enhance deposit intermediation, credit creation, and economic growth.
Authors
Navendu Prakash, Jindal School of Banking & Finance, O. P. Jindal Global University, Sonipat Narela Road, Sonipat, Haryana 131001, India
Shveta Singh, Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi 110016, India
Seema Sharma, Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi 110016, India
Summary
The push for a digital economic framework has spurred multifaceted innovations in payments and settlement systems worldwide. The speed, accuracy, and reliability of payment infrastructure significantly influences monetary supply and credit flows, underscoring their critical role in monetary policy formulation.
This paper elucidates the importance of efficient payment systems as precursors to financial intermediation. Distinguishing between large-value and retail payment systems, it examines the extant transmission mechanism via two intervening channels: currency holdings and excess reserves of commercial banks.
The findings bear profound policy implications, advocating for transitioning to electronic payment systems that minimizes the use of cash. At the macroeconomic level, findings reveal how efficient payment systems enhance deposit intermediation, credit creation, and economic growth. Results indicate a marked degree of substitution between electronic and paper-based clearing platforms, and consequently, the shift towards electronic payments tends to reduce the negative effects of paper-based clearing on growth and consumption.
Published by: Journal of Economics and Business
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