Box 9: Real time gross settlement (RTGS) Forty-six banks currently have reserve accounts with the Bank of England.18 Around £780 billion of transfers are made on average each day between these reserve accounts19. With all 46 reserve accounts, there are a total of 2,070 different payment flows in both directions between the accounts (money can be transferred from each individual bank to every other bank).* Rather than each bank having to deal with 45 other banks in order to make payments between them, they can simply send payment instructions to the Bank of England’s RTGS (real time gross settlement) processor. Established in 1996, the RTGS is a computer system that stores the balance of each bank’s reserve account and the transactions going to and from each reserve account. The RTGS processor handles transfers of money by reducing the balance of the paying bank’s reserve account, and increasing the balance of the receiving bank’s reserve account. RTGS executes the full transfer of the total payment, made instantly between reserve accounts through the RTGS processor. This is in contrast to ‘multilateral net settlement’ systems, whereby transactions between banks are queued, cancelled out as much as possible, for example Bank A’s payment to Bank B might cancel out another payment that Bank B needs to make to Bank A. The net difference is transferred at regular intervals such as every two hours for ‘faster payments services’, or daily for transfers such as BACS.
Your money is not central bank money, and nor is it backed pound for pound by central bank money. Your money is a ‘promise to pay’ by a commercial bank, but as we saw in Chapter 3 on the history and nature of money, even central bank money is only a promise to pay that is enforced by the Government. The difference between the credibility of central bank money (including cash) and commercial bank money is further blurred by the insurance of commercial bank money by the state.
Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub