Money, debit card, gross-settlement risk, and central banking

A monetary model is constructed to explore the effects of a new source of inefficiency of gross settlement with an operational risk on the choice of cash that is risky to hold and a debit card that is costly to use. During inflation, gross settlement would entail the deposit of a larger amount of money as payments and collaterals for the finality of the settlement process, thereby leading to a consumption loss. The endogenous adjustment between...