ABSTRACT
The central banks of all industrialised countries specialise to some extent in what roles they play in their respective payment systems. Each defers to other entities in its respective economy, both private and public, to assume roles that it elects not to fill. Nevertheless, there is considerable variation across industrialised economies in how broad or focused a role the central bank assumes. Does the body of economic learning about central banking and payment systems have anything to say about what is the preferred point along this spectrum, or about the range of acceptable points? I suggest here that this learning does have an implication. Specifically, the central bank is a specialised organisation that is uniquely able to offer free, short-term credit on illiquid collateral to other financial intermediaries. It provides this service via a set of settlement accounts on its books for those intermediaries. A central bank does well, and arguably does best, by specialising in providing these services while leaving other roles (including clearing of retail and commercial transactions, transmission of payment messages and commercial regulation of payment intermediaries) to different entities that can specialise in those tasks.
