Large value subject, low value research

The Federal Reserve Bank of New York yesterday published a paper that describes ten major long-range trends in the settlement of large-value payments worldwide. The trends are driven by technological innovation, structural changes in banking, and the evolution of central bank policies.

The authors observe that banks are increasingly making large-value payments in real-time systems, settling a larger number of foreign currencies directly in their home country by using offshore systems and settling a greater number of foreign exchange transactions in Continuous Linked Settlement Bank or through payment-versus-payment mechanisms in other systems.

The study also shows that the service level of systems is improving, through enhancements such as longer operating hours and standardised risk management practices, while transaction fees are decreasing.

Increasingly, payments settled in large-value payments systems are more numerous, but on average of smaller value. Furthermore, the overall nominal total value of large-value payments is increasing, although the real value is declining.

The Fed paper represents a thoroughgoing primer on the current state of large-value payment sysyems, but its prescriptive analysis of the trends is surprisingly lightweight. I'd like to have seen more on the convergence of large-value and small-value payments in a frictionless, network-connected world, and the consequences of such a shift for banks and policymakers in the future.

You can download the full paper in PDF format here.