Why Does Overnight Liquidity Cost More ThanIntraday Liquidity?

In this paper, we argue that the observed di¤erence in the cost of intraday and overnightliquidity is part of an optimal payments system design. In our environment, the interestcharged on overnight liquidity a¤ects output while the cost of intraday liquidity onlyaffects the distribution of resources between money holders and non-money holders.The low cost of intraday liquidity follows from the Friedman rule and it is optimalto deviate from the the Friedman rule with respect to overnight liquidity. The costdi¤erential simultaneously reduces the incentive to overuse money and encourages risksharing.[...]