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A new report by the Bank for International Settlements (BIS) has called on central banks to improve cross-border payments efficiency by extending the operating hours of real-time gross settlement (RTGS) systems.
Authored by the BIS Committee on Payments and Market Infrastructures (CPMI), the report outlines three types of extension for central banks to consider and the technical feasibility of implementing each one.
The first option is to extend operating hours on current open days, the second is to extend operating hours into new open days and the third is to extend operating hours to 24/7 service.
Based on its research, the BIS said that only “minor” infrastructure changes may be needed to extend operating hours on current open days, particularly if the extension amounts to a “modest” expansion of the settlement window.
However, an extension that amounts to round-the-clock operating hours on current open days (i.e., 24/5), could require changes to system startup, shutdown and maintenance processes.
To support these process changes, “significant” infrastructure adaptations would be required, the report notes.
The report also warns that extending operating hours can have knock-on effects in other areas; for example, in increased payment volume or a concentration of payment flows at certain times of the day.
In such cases, expanding processing capacity, processing throughput, memory and storage capabilities would require further infrastructure changes.
If pursued, the report suggests that these changes may present opportunities to introduce further technical upgrades such as greater automation or safeguards against error or unauthorised actions.
In turn, these would promote greater and more efficient interoperability between other payment systems, such as instant payment systems and RTGS systems, in future.
New open days and 24/7 service
Despite the need for extending office hours for potential RTGS systems, the report warns that both of these options come with significant risk to central banks.
For example, both options will result in a narrow window for system maintenance activities that rely on system downtime, especially so in the case of 24/7 service.
Similarly, broadening the scope of operating hours into current non-operational days, such as weekends and public holidays, may affect the availability of those days for maintenance activities.
“To the extent that a central bank relies on weekends or public holidays for extended periods during which maintenance activities can be performed, consideration would need to be given to whether and how that practice would need to change,” the report notes.
Full 24/7 operations heighten the challenges of system maintenance even further, by removing any and all downtime that is traditionally used for maintenance windows.
As such, a central bank may need to consider “substantial” changes to system infrastructure to support maintenance activities while the system remains open.
One potential solution would be to add multiple versions of the system, so that maintenance can be conducted on one version during downtime while another version is still operating.
Both options would also require extra staff to cover overnight shifts or new operational days, and technology support for system maintenance and upgrades.
At the same time, significant system enhancements to accommodate 24/7 operations could enable greater process automation, which might reduce certain staffing needs.
Financial market liquidity on tap
If new open days or 24/7 service is pursued, the report notes that it is likely that RTGS participants would have difficulty accessing liquidity from their domestic financial market, due to a mismatch in opening hours.
One solution to this issue would be for such markets to extend their operating hours to align with the domestic RTGS system, although this would require the agreement of multiple affected parties.
Another interim solution could be that RTGS participants implement lending arrangements with each other during off hours.
In the absence of market funding sources, the report notes that RTGS participants are “likely to rely on liquidity from the central bank”, so the central bank would need to extend its weekday liquidity measures, including monitoring and credit controls.
This would also be the case if operating hours were extended only on current open days.
The BIS has invited central banks to comment on their preferences for both short-term and long-term adjustments to RTGS operating hours in relation to the latest report.
“Central banks are encouraged to consider potential extensions to RTGS system operating hours by using this analytical framework as a guiding tool and to coordinate with the relevant stakeholders domestically and across jurisdictions,” the report notes.
Based on a previous report published last year, the BIS said central banks indicated a preference for extended operating hours on current open days in the short term, although some respondents expressed support for 24/7 service in the long term.
