Central Bank Money & Accounts PDF

**Central bank money and accounts** **Liquidity** This refers to a payment participant having adequate money or available balances in their settlement account. 3. **Central bank money** While central banks are responsible for issuing money, not all of the money they issue is considered to be ce...

**Central bank money and accounts** **Liquidity** This refers to a payment participant having adequate money or available balances in their settlement account. 3. **Central bank money** While central banks are responsible for issuing money, not all of the money they issue is considered to be central bank money at all times. For example, a physical banknote issued by a central bank is central bank money. Central bank money can also be money held electronically in an account at a central bank. In these examples, the owner of the money has a claim on a central bank. On the other hand, money issued by a central bank but held electronically at a commercial bank is not considered to be central bank money because the account holder has a claim on a commercial bank rather than a central bank.  4. **Central bank accounts** Central banks often require that the participants (ie commercial banks) of a country's financial system maintain accounts with them. These accounts can be used for different purposes. For example, central banks often require market participants to maintain deposits on reserve in a central bank reserve account. These deposits are often a defined percentage of the participant's liabilities and are generally referred to as reserve requirements. These reserves help to ensure the health of the financial system in the event of a major market disruption.  5. **Settlement in central bank money** PSPs that interact directly with central banks are required to maintain settlement accounts with them. Sometimes, these are referred to as central bank clearing accounts. When a payment is made between two PSPs, the central bank moves funds from one account to another. The movement of funds can only occur if the PSP has adequate liquidity. The actual movement of funds is called settlement in central bank money. If legislated settlement finality is in place, the settlement is final (see section 1.3.2).   6. **FACTFIND** 7. **The role of central banks in settlement** Taking the UK as an example, explore how the Bank of England provides settlement services to payment systems, offers settlement accounts to participants, grants access to intraday liquidity and protects its balance sheet. Find out more: Bank of England: [Payment and settlement](https://www.bankofengland.co.uk/payment-and-settlement); [Bank of England settlement accounts](https://www.bankofengland.co.uk/-/media/boe/files/payments/boesettlementaccounts) Compare the Bank of England's role with that of the central bank in your country.