Policy issues for central banks in retail payments

The Committee on Payment and Settlement Systems (CPSS) is today issuing for consultation the report Policy issues for central banks in retail payments. The report, now available on the BIS website (www.bis.org), was prepared by the Working Group on Retail Payment Systems, appointed by the CPSS, which consists of payment systems experts from the central banks of each of the G10 countries, the Reserve Bank of Australia and the European Central Bank. Comments are invited until 13 December 2002 from all interested parties.

The consultative report highlights the importance of efficient and safe use of money as a medium of exchange in retail transactions. This is an essential function of the currency and a foundation of the trust people have in it. In addition, retail payment systems and instruments are significant contributors to the broader effectiveness and stability of the financial system, in particular to consumer confidence and the functioning of commerce. For these reasons, the efficiency and safety of retail payments are of interest to central banks.

The report identifies certain current trends in the markets for consumer and lower-value commercial payments and explores related policy issues for central banks. It describes the varied ways in which the central banks represented on the working group are involved in retail payments, distinguishing three types of involvement: provider of services, overseer of payment systems and catalyst or facilitator of private sector solutions. Differences in central banks' policy mandates are discussed, in particular the allocation of relevant responsibilities and powers among public authorities, including central banks, and differences in the respective roles of the central bank and the private sector.

The report puts forward four public policy goals for maintaining and promoting efficiency and safety in these markets, relating to: (i) the legal and regulatory framework, (ii) market structure and performance, (iii) standards and infrastructure and (iv) central bank services. While the last of these goals concerns only central banks, the first three may also be relevant for other public authorities with an interest in the efficiency and safety of retail payments.

The report considers the contribution of central banks towards furthering these goals, identifying a range of possible actions. Certain actions are recommended as a minimum, suitable for all central banks. Beyond the minimum, other options are identified, which may be an appropriate policy response in certain circumstances and may be possible for some central banks. The recommended minimum actions emphasise the importance of market monitoring and of a cooperative and advisory approach by the central bank towards both private and public sectors.

Central banks share the view that market mechanisms should be the primary engine for achieving and maintaining efficiency and safety in retail payments but acknowledge that the market may encounter persistent impediments so that it is not able in every case to produce appropriately efficient and safe outcomes.

The possible relevance of the report's conclusions to a wider group of countries is briefly discussed. The report suggests that the degree of development of a country's retail payments markets may be a relevant factor in determining the appropriate roles, respectively, of the central bank and the private sector, so that, in emerging market economies, the central bank may need to adopt a proactive approach, at least in the short term.

Comments may be sent to the Committee on Payment and Settlement Systems, Bank for International Settlements, CH-4002 Basel, Switzerland; e-mail: cpss@bis.org; Fax: +41 61 280 9100.

Notes to editors

1. The Committee on Payment and Settlement Systems (CPSS) serves as a forum for the central banks of the G10 countries to monitor and analyse developments in payment and settlement arrangements and to consider related policy issues. Non-G10 central banks are increasingly involved in the Committee's work. The chairman of the CPSS is Tommaso Padoa-Schioppa, a Member of the Executive Board of the European Central Bank. The CPSS Secretariat, headed by Marc Hollanders, is hosted by the BIS.

2. The Working Group on Retail Payment Systems is chaired by Carlo Tresoldi of the Bank of Italy. A list of the group's members is included as Appendix C of the consultative report. Two previous reports prepared by the Working Group have been published: Retail payments in selected countries: a comparative study (September 1999) and Clearing and settlement arrangements for retail payments in selected countries (September 2000). Both reports, together with a full list of CPSS publications, are available on the BIS website.