Islamic Finance - Fundamentals of Conventional Payment Systems
The Bank for International Settlement (BIS) has established the following key principles for payment systems to accomplish the aforementioned: -the system should have a solid legal foundation across all pertinent countries -The system should have clearly defined processes for the management of credit risks. -The rules and procedures of the system should enable participants to have a clear awareness of the impact of that system on each financial risk they incur by participating in it - The system should offer prompt final settlement on the day of value at the current value or market rate, preferably during the day and at the very least at the end of the day. A system where multilateral netting is used should, at the very least, be able to guarantee the timely completion of daily settlements in the event that the participant with the largest single settlement obligation is unable to settle. -Where alternative assets are utilized, they should bear little to no credit risk and little to no liquidity risk. Preferably, assets used for settlement should be claims against the central bank. The system should guarantee a high level of security and operational dependability, and it should have backup plans in place to ensure that daily processing is completed on time. The system should offer a method of making payments that is convenient for its users and effective for the economy. The system's governance mechanisms should be efficient, responsible, and transparent. The system should include objective and publicly revealed criteria for participation, allowing fair and open access.
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