Red Book

Background

The “Red Book” is an authoritative source that provides a comprehensive overview of payment, clearing, and securities settlement systems globally. Specifically, it focuses on detailing systems within the 25 member central banks of the Committee on Payments and Market Infrastructure (CPMI), a committee hosted by the Bank for International Settlements (BIS).

Historical Context

The publication of the Red Book began as part of an initiative by the BIS to standardize and enhance transparency within global payment and settlement systems. The BIS, an international financial institution, functions as a bank for central banks to promote financial stability and facilitate international cooperation among monetary authorities. With the increasing complexity and interconnectivity of financial systems, the need for a clear, descriptive reference for payment and settlement systems became evident, thus leading to the creation of the Red Book.

Definitions and Concepts

Payment Systems: Structures in place to facilitate the transfer of monetary value between parties. This can include clearinghouses, Real-Time Gross Settlement (RTGS) systems, and Automated Clearing House (ACH) systems.
Settlement Systems: Processes and procedures used to finalize or settle a transaction, ensuring that a payer and a payee adhere to the terms of their financial agreements.
Committee on Payments and Market Infrastructure (CPMI): An international standard-setting body that promotes the safety and efficiency of payment, clearing, settlement, and associated arrangements.
Bank for International Settlements (BIS): An institution serving central banks with the aim of fostering international monetary and financial cooperation and promoting an environment of financial stability.

Major Analytical Frameworks

Classical Economics

The Red Book does not have a direct connection with Classical Economics principles, but the need for thorough descriptions and studies of payment and settlement systems can be seen as fostering better market functioning, which is consistent with Classical Economic thought promoting free and efficient markets.

Neoclassical Economics

Similarly, the Red Book supports the efficient allocation of resources in financial markets, aligning with Neoclassical emphasis on market equilibrium, efficiency, and the importance of information dissemination.

Keynesian Economics

From a Keynesian perspective, effective payment and settlement systems are critical for maintaining liquidity within the economy, especially during times of economic distress where swift and secure transactions can prevent market and solvency crises.

Marxian Economics

While not directly related, the centralized control and descriptions within the Red Book could be interpreted through a Marxian lens as mechanisms for maintaining the stability of the capitalist financial system.

Institutional Economics

The Red Book is crucial in understanding the institutional structures that help ensure stable and effective market environments. Institutional Economics would appreciate the role of these descriptive frameworks in building robust economic institutions.

Behavioral Economics

Although indirectly connected, understanding payment and settlement systems’ efficiency might influence the behavioral patterns of market participants, an area of interest for Behavioral Economics.

Post-Keynesian Economics

Post-Keynesian Economics, focusing on the importance of financial structures and institutional setups, would use the Red Book’s data to highlight the comprehensive need for systemic oversight and intervention.

Austrian Economics

Austrian Economics might critique the role of centralized systems described in the Red Book, preferring decentralized, spontaneous order of market systems. However, the detailed procedural exposures could still provide useful contrast.

Development Economics

For developing economies, the Red Book serves as a blueprint for creating and improving necessary financial infrastructure to support broader economic development agendas.

Monetarism

Monetarists might use the data within the Red Book to better understand the mechanisms of money supply control through payment and settlement systems.

Comparative Analysis

The Red Book allows for a comparative study of various national payment and settlement systems, enabling an analysis of their design, effectiveness, and potential areas for improvement. This comparative analysis can be instrumental for academics, policymakers, and financial institutions seeking best practices and what measures align most closely with financial stability and efficiency.

Case Studies

Member countries of the BIS from different economic contexts and financial systems provide case studies within the Red Book itself. Country-specific studies detail how different nations architect and manage their payment and settlement infrastructures and the result of these actions on financial stability.

Suggested Books for Further Studies

“Safe and Efficient” by the BIS
“Payment and Settlement Systems in Global Financial Markets” by Gabriel G. Hawawini
“Clearing and Settlement of Derivatives Transactions” by David Loader
“International Payments, Debts and Gold: Collected Essays” by C. Kindleberger

Clearinghouse: An intermediary between buyers and sellers of financial instruments that helps facilitate and standardize the clearing and settlement process.
Real-Time Gross Settlement (RTGS): A payment system