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5:00Liquidity in Payment Systems: Why Central Banks Watch the Queue
Every working day CHAPS moves about £344 billion across roughly 208,000 payments — but the banks holding it never own enough cash to cover all their outgoing payments at once. The whole system runs on borrowed time and recycled money.
High-value payment systems like the UK's CHAPS and the US Fedwire are Real-Time Gross Settlement (RTGS) systems: each payment settles individually and irrevocably across the central bank's books, with no netting. That design eliminates the settlement risk of deferred-net systems (where a participant could fail mid-day owing a huge net amount), but it comes at a price — RTGS demands that banks have *good funds* on their central-bank account at the exact moment each payment settles. A bank pushing £344bn of daily flow can't pre-fund all of it, so the system must constantly recycle incoming money to fund outgoing payments.
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