Liquidity Saving Mechanisms in Payment Systems and Settlement Liquidity: The Experience of Japan’s Next- Generation RTGS Project

Payment systems are one of the key Financial Market Infrastructures (FMIs) and have showed remarkable progress over the past two decades. The first half of this chapter focuses on the evolutionary process of payment systems, starting with the Deferred Net Settlement (DNS) system and progressing to the RealTime Gross Settlement (RTGS) system. Subsequently, much more sophisticated payment systems have been put in place, which include the “Hybrid System,” and the “RTGS system with Liquidity Saving Mechanism (LSM).” In the latter half of this chapter, experience from the “Next-Generation Real-Time Gross Settlement” (RTGS-XG) project of BOJ-NET is discussed. BOJ-NET is the large-value payment system operated by Bank of Japan (BOJ). BOJ-NET added an LSM in 2008 and became an RTGS system with LSM. The impact of the LSM’s introduction is analyzed, which includes the liquidity-saving effect, the average waiting time in the queue, the turnover ratio, and the volume of idle liquidity.