ABSTRACT
PAYMENT SYSTEMS RANGE FROM SIMPLE cash-dominated systems, as in the Seychelles, to systems involving a range of noncash payment instruments. The key feature of each payment system is the way payments are effected. In a currency-based payment system, payments are concluded by the transfer of currency notes from payer to payee; settlement takes place simultaneously with the transaction because currency represents final payment (currency constitutes “good funds”, i.e., legal tender or central bank money) so no clearing function is needed. Because all other payment instruments involve at least one third party, the payment process is necessarily more complicated. Processing of cheques, for example, involves some means of clearing; settlement takes place through correspondent balances or by transferring balances of “good funds” in accounts held at the central bank. The same is true for all noncash payment instruments.
