PAYMENTS IN A NEW DEMOCRACY PAYMENTS IN A NEW DEMOCRACY
Added on 2021-05-31
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PAYMENTS IN A NEW DEMOCRACYPayments in a new DemocracyStudent NameEmail AddressInstitutionDate
2PAYMENTS IN A NEW DEMOCRACYDave MaclawrenceP.O.BOX 355464-22356Devinson CityMalu21/05/2018The head of StateMalu People’s RepublicP.O.BOX 3779842-22356Devinson City MaluDear Sir/MadamRE: FEATURES OF A PAYMENT SYSTEMRegarding the intended change in the nations payment system from the previous use of barter trade to a modern payment system, I have written this letter to assist you to understand some of the basic features of a modern payment system.1.Money Purposes of moneyA medium of exchange, money can be used to intermediate the exchange of goods and services. This way the inefficiencies associated with the barter trade such as the “coincidence of wants” can be minimised. Money can be applied when comparing the values of goods with no similarities [ CITATION Ran12 \l 2057 ].A measure of value, this is regarded as a unit of account in economics. Money is a standard numerical value that can be applied in measuring the value of market goods and services. This way it is a prerequisite for the formulation of commercial
3PAYMENTS IN A NEW DEMOCRACYpacts that may involve debts. Money acts as the basic measure and uniform denomination of trade.Standard of deferred payment, this means money can be applied as an accepted wayof paying debts. Money has the status of legal tender an indication that it can be applied in discharging debts [ CITATION Mis07 \l 2057 ].Importance of a payment systemA payment system is a very important part of a country’s financial infrastructure. it allows for the transfer of money as well as the financial instruments. Should a payment system fail then the entire system may be in a crisis which leads to a financial shock to the financial system. An efficient and safe payment system is necessary for a financial stability that can facilitate smooth trading. Importance of national payment systemThe National Payment System (NPS) is regarded as one of the pillars of financial stability in a nation’s economic system. The Reserve Bank is responsible for ensuring the safety and soundness of the NPS and do put in place risk reduction measures in the system payment so as to minimise systemic risks. Through the Reserve bank, an inter-bank settlement service is put in place through the real-time electronic settlement system such as a Multiple Option Settlement system. The multiple settlement options is also responsible for settling obligations arising from the retail payment clearing as well as equity and Bond markets.2.Central bankThe role of central bank and the purpose of regulationThe central bank is an institution in a country that plays the management role in the monetary system. The institution manages the nation’s currency, regulates the supply of money and the prevailing interest rates. In addition, the central bank is the overseer of the nation’s commercial banking system [ CITATION Van09 \l 2057 ].The monetary system can easily be eroded by unethical activities. This way a nation relying on it may be hit by either deflation or inflation which eventually destroy the
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