The welfare benefits of stable and efficient payment systems.pdfVIP

The welfare benefits of stable and efficient payment systems Stephen Millard and Matthew Willison Bank of England, Threadneedle Street, London, EC2R 8AH. E-mail: lard@bankofengland.co.uk matthew.willison@bankofengland.co.uk The views expressed are those of the authors and do not necessarily reflect those of the Bank of England. Copies of working papers may be obtained from Publications Group, Bank of England, Threadneedle Street, London, EC2R 8AH; telephone 020 7601 4030, fax 020 7601 3298, e-mail mapublications@bankofengland.co.uk Working papers are also available at www.bankofengland.co.uk/wp/index.html The Bank of Englands working paper series is externally refereed. © Bank of England 2003 ISSN 1368-5562 Contents Abstract 5 Summary 7 1 Introduction and overview 9 2 The basic model 10 3 Adding a payment system 12 4 Operational risk 15 5 Welfare 18 5 Conclusions 20 References 3 Abstract In this paper, we develop a theoretical model of the introduction of a payment system into an economy in which transactions had previously been carried out using cash. We then use this model to measure the welfare benefits of such a change in terms of the