Merrouche, OuardaNier, Erlend2012-03-192012-03-192010-10-01https://hdl.handle.net/10986/3927This paper assesses the impact of introducing an efficient payment system on the amount of credit provided by the banking system. Two channels are investigated. First, innovations in wholesale payments technology enhance the security and speed of deposits as a payment medium for customers and therefore affect the split between holdings of cash and the holdings of deposits that can be intermediated by the banking system. Second, innovations in wholesale payments technology help establish well-functioning interbank markets for end-of-day funds, which reduces the need for banks to hold excess reserves. The authors examine these links empirically using payment system reforms in Eastern European countries as a laboratory. The analysis finds evidence that reforms led to a shift away from cash in favor of demand deposits and that this in turn enabled a prolonged credit expansion in the sample countries. By contrast, while payment system innovations also led to a reduction in excess reserves in some countries, this effect was not causal for the credit boom observed in these countries.CC BY 3.0 IGOACCESSION COUNTRIESACCOUNT MANAGEMENTACCOUNTINGACCOUNTING PRACTICESAMOUNT OF CREDITASYMMETRIC INFORMATIONBALANCE SHEETBANK CREDITBANK DEPOSITSBANK FAILURESBANK LENDINGBANK OF ENGLANDBANK OF LATVIABANK PAYMENTSBANK REGULATIONBANKING ASSETSBANKING CRISESBANKING LAWSBANKING REFORMBANKING SECTORBANKING SECTOR ASSETSBANKING SERVICESBANKING SYSTEMBANKING SYSTEM ASSETSBANKING SYSTEMSBANKSBARTERBIASESBONDBORROWINGBORROWING COSTSBUDGET CONSTRAINTSBUSINESS CYCLESCASH PAYMENTCASH PAYMENTSCENTRAL BANKCENTRAL BANK BILLSCENTRAL BANKSCHECKSCLEARING HOUSECOLLATERALIZATIONCOMMERCIAL BANKSCONSOLIDATIONCONSOLIDATIONSCONSUMPTION EXPENDITURESCONTROL VARIABLESCORE DEPOSITSCOST OF CREDITCOUNTRY DUMMIESCREDIT ALLOCATIONCREDIT BOOMCREDIT CRUNCHCREDIT DECISIONSCREDIT EXPANSIONCREDIT GROWTHCREDIT RISKSCREDIT TRANSFERSCURRENCYCURRENCY BOARDCURRENCY BOARD ARRANGEMENTCURRENCY COMPOSITIONCURRENCY HOLDINGCURRENCY TRANSACTIONSCURRENT ACCOUNTCURRENT ACCOUNTSDEBTDEBT LIABILITIESDEMAND DEPOSITSDEPENDENTDEPOSITDEPOSITSDEPRESSIONDESCRIPTIVE STATISTICSDIRECTED CREDITDOMESTIC BANKINGDOMESTIC BANKING SYSTEMDOMESTIC CREDITDOMESTIC CURRENCYECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICYEESTI PANKELECTRONIC FORMELECTRONIC PAYMENTSELECTRONIC TRANSFERSEMERGING MARKETEMERGING MARKET ECONOMIESENTREPRENEURSERROR TERMERROR TERMSEXPENDITUREEXPOSUREFEDERAL DEPOSIT INSURANCEFEDERAL RESERVEFEDERAL RESERVE SYSTEMFINANCIAL INTERMEDIATIONFINANCIAL STUDIESFOREIGN ASSETSFOREIGN BANKSFOREIGN CURRENCYFOREIGN CURRENCY DEPOSITSFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVESFOREIGN OWNERSHIPGOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURESGOVERNMENT OWNERSHIPGOVERNMENT SECURITIESGOVERNMENT SECURITIES MARKETGOVERNMENT SPENDINGGROSS DOMESTIC PRODUCTGROSS SETTLEMENTGROSS SETTLEMENT SYSTEMGROSS SETTLEMENT SYSTEMSGUARANTEE FUNDHIGH-INCOME COUNTRIESHOLDINGHOLDINGSHOUSEHOLDSHUMAN CAPITALIMPORTINFLATIONINFLATION RATEINFORMATION ON BORROWERSINFORMATION TECHNOLOGYINSTRUMENTINTERBANK MARKETSINTEREST RATEINTEREST RATE CEILINGSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL SETTLEMENTSINVESTINGLEGAL FRAMEWORKLEGISLATIONLIQUID ASSETSLIQUIDITYLIQUIDITY MANAGEMENTLIQUIDITY PREFERENCELOANLOAN COMMITMENTSLOAN MONITORINGLOSS-SHARING ARRANGEMENTSMAKING PAYMENTSMARKET ECONOMYMONETARY FUNDMONETARY POLICYMONETARY STABILITYMONEY DEMANDMONEY MARKETMONEY MARKET OPERATIONSMONEY SUPPLYNATIONAL BANK OF HUNGARYNATIONAL BANK OF SLOVAKIANEGATIVE SHOCKSNET SETTLEMENTNOMINAL INTEREST RATENOMINAL INTEREST RATESOPEN MARKETOPEN MARKET OPERATIONSOPPORTUNITY COSTPAYMENT ORDERSPAYMENT SERVICESPAYMENT SYSTEMPAYMENT SYSTEMSPAYMENTS SYSTEMPAYMENTS SYSTEMSPLEDGESPOLITICAL ECONOMYPORTFOLIOPRIVATE BANKSPRIVATE CREDITPRIVATE ENTERPRISESPRIVATIZATIONPRUDENTIAL SUPERVISIONPUBLIC BANKSPUBLIC SPENDINGRATE OF GROWTHREGRESSION ANALYSISREPOREPOSRESERVE REQUIREMENTRESERVE REQUIREMENTSRESERVESRETURNROLE OF BANKSSECTOR REFORMSECURITIESSERIAL CORRELATIONSETTLEMENTSETTLEMENT PROCEDURESETTLEMENT RISKSETTLEMENT SYSTEMSETTLEMENT SYSTEMSSHAREHOLDERSSOFT BUDGET CONSTRAINTSOFT BUDGET CONSTRAINTSSOLVENCYSTRUCTURAL REFORMSTRUCTURAL REFORMSSUPERVISORY FRAMEWORKSUPERVISORY POWERSUPPLY OF CREDITSUPPLY SHOCKSSYSTEMIC RISKTAXTERM DEPOSITSTOTAL DEPOSITSTRANSACTIONTRANSITION ECONOMIESTRANSMISSION MECHANISMSTRANSPORTTREASURYTREASURY BILLTREASURY BILL RATEUNCERTAINTYUNIONVALUE PAYMENT SYSTEMWorld Bank10.1596/1813-9450-5445