Introduction
In order to optimize the situation with the Australian payment systems, the Reserve Bank of Australia introduced the real-time gross settlement in 1998. Since then, the RTGS values have been increased by almost 70 % and the volumes of these wholesales payments have considerably grown as well.
The implementation and functioning of this system is essential for normal payment operations and transactions in Australia because this system has succeeded in stabilizing the difficult situation during the financial crisis in 2008. The presented shifts are of great significance because they enable banks to accurately evaluate the main shortcomings as well as benefits of using RTGS.
Main Discussion
Specifying the Main Types of Wholesale Payments
Single net transfers can be settled by means of the Exchange Australian Account (ESA) created at the Reserve Bank. If one of the transfer stages fails, the entire transaction can also be under the risk of this system disruption (Gallagher et al., 2010, p. 61).
In order to eliminate the systemic risk, the RBA has introduced RTGS basis and presented three main types of wholesale payments among which are wholesale debt securities and market transactions, SWIFT payment delivery system controlls by Australian Payments Clearing association, and interbank borrowing and lending carried out via “cash transfers” (Gallagher et al., 2010, p. 61).
Hence, the first type of settlement is aimed at reducing the risk of cash loss and at ensuring the simultaneous occurrence of payment and delivery stages. The second type of settlement can be carried out by means of exchanging the messages between the banks. Using specific software systems and fund transfer bank settlement minimizes the risk of the transaction failure. Finally, the third kind of transactions presupposes the usage of electronic settlement system.
Some additional measures have also been introduced to improve the situation with the Australian payment system. Specifically, the introduction of net interbank obligations on the basis of low-value payment clearing is also important for optimizing cashless transfers. Other options involved the infusion of share market and property transactions that were later introduced to the Australian payment systems. The predominance of electronic payment systems and real-time gross settlements has provided the RBA with more opportunities and improvements in terms of better risk management.
Presenting Recent Rates of Values and Volumes of the Wholesale Payments
While evaluating the changes introduced to the Australian payment system, it can be stated that the number of settlements as well as the value of transactions have been tangibly improved and a steady growth has been annually observed. Though payment activity was noticeably lower in 2008 because of the reduced turnover and the global financial crisis, the next year was marked by a swift recovery in number of performed transactions, thought the value of settlements were much lower because it was established as precautionary measures (Gallagher et al., 2010, p. 62).
Despite some rigid fluctuation of values, the number of transactions was relatively steady, even during the financial crisis. The numerical data presented in Graph 1 provides a more explicit picture of the situation with whole payments as well as how RTGS contributes to the risk elimination.
While analyzing the numerical data from Table 1, it should be noted that considerable improvements to the Australian payment system have been made by SWIFT PDS. To enlarge on this, interbank payments carried out between banks prevailed RTGS values and have had a positive impact on their growth. Banks customers’ transactions performed with by SWIFT means have also been the largest providers enhancing the increase in RTGS numbers.
Hence, 70 % rise has been observed in RTGS volumes whereas values have been marked by a 10 % rise. According to Table 1, Austraclear payments have also been grown due to CGS movement from RITS to the clearing settlements. Preference of a single settlement system is one of the main reasons of consolidating two types of payments (Gallagher et al., 2010, p. 63).
The size of payment distributions has also undergone considerable changes. In particular, both ratios of large and small payments have been increased nearly up to 20 %. However, the overall value of these transactions has remained quite low comparing to the total share payments. In contrast, the values for low-value clearings have also been risen considerably right after the RTGS introduction, as presented in Graph 3 (Gallagher et al., 2010, p. 64). In addition, it should be stressed that exchange settlements and banking flows have had a potent impact on day-to-day volatility.
Analyzing the Reasons for Introducing the RTGS System for Wholesale Payments
In general, the introduction of RTGS system and its development during 12 years has been directed at managing the settlement risk taken by the Australian financial system. In this respect, the inception of RITS functioning has created a solid foundation for stability of the Australian financial system (Gallagher et al., 2010, p. 67). One of the main reasons for introducing new forms of payment was lack of security of payments performed because large amounts of cash has been under the risk of deliver problems. The critical situation also observed while performing wholesale payments.
Defining System Liquidity and Contribution of RBA to the Efficiency and the System’s Use of Liquidity
Liquidity points out the assent’s ability to be purchased without significant fluctuations in price. However, $ 168 billion volume of payments per day is reinforced by $ 15 billion observed in system liquidity that has been daily exchanged between the banks for many times (Gallagher et al., 2010, p. 68).
In this respect, sufficient liquidity is important for ensuring of continuous settlement of RTGS transactions. The system liquidity is presented in Graph 5 demonstrating the correlation between intraday repurchase transactions and percentage of opening balances (Gallagher et al., 2010, p. 68). The former is considered to be the main source of liquidity promoting payment activities. Introducing the RTGS settlements can contribute to the system liquidity efficiency, particularly the usage of queue-testing method.
This algorithm can be especially effective in eliminate low rates of liquidity and, therefore, it is an importance means for improving the problem. In addition, it should also help normalize the intraday payment activities, particularly large ratios of volumes and values that depend on settlement operations.
Conclusion
In conclusion, RTGS settlements have introduced tangible shifts in daily operations of the Australian financial system. Particular, great contribution have been made by the infusion of specific wholesale payment strategies where the primary focus has been made on introducing cashless transfer operations and electronic delivery systems.
Importantly, the 2008 crisis have not damaged much the financial stability of the bank transactions, though the volumes of settlements were decreased due to the reduced turnovers. In addition, system liquidity has also been stabilized, being an important component of secure and regular transactions between the banks.
Reference List
Gallagher, P. Gaunlett, J., and Sunner, D. (2010) Real-time Gross Settlement in Australia. Bulletin. 61-70.