The history of interbank settlement arrangements: exploring central banks’ role in the payment system

Modern central banks have come to view payment systems as a key area of strategic interest, both as part of their responsibilities for financial stability and for the implementation of monetary policy. By considering the evolution of interbank settlement arrangements and central banking functions in the context of a number of diverse historical country case studies, this paper seeks to improve understanding of the development of, and reasons for, central banks’ current roles. Starting from a situation where the earliest banks gradually began to accept claims on each other, banks introduced a variety of innovations to clear and settle between themselves more efficiently. Focusing particularly on the lender of last resort function – a key characteristic of a central bank – this paper explores whether institutions at the centre of clearing and settlement arrangements developed central bank-like characteristics.