Efficient payment systems are critical to the effective functioning of a financial system. Robust payment systems that are resistant to systemic and credit risk are an essential requirement for maintaining and promoting financial stability. Furthermore, in developing countries, an efficient and reliable payment system infrastructure constitutes an essential factor in creating a dynamic market economy. In many developing countries, payment system mechanisms are provided for by way of central bank directives rather than by law. Increasingly, however, the successful operation of payment systems can raise quite difficult issues, and a proper legal basis for such systems is desirable. The legal basis should provide for a variety of systems, including noncash methods of payment such as those relying on electronic debit cards and credit cards. Different types of clearance systems—such as paper-based and electronic clearing and settlement systems that are based on multilateral netting, paper-based gross settlement systems, same-time (intraregion) payment systems, electronic real-time gross settlement systems, and “swift-based terminal” systems—need to be provided for. Issues of confidentiality, supervision, and netting also need to be incorporated in the legislation.
Finality of payment and zero hour rule2 provisions are important to ensure the safety and soundness of the payment system. These items ought to be provided for in the law. The banking law should also provide that, although banks cannot be liquidated without the consent or knowledge of the central bank, the fact that the payment system also includes other participants whose liquidation cannot be orchestrated by the central bank requires clear and express provisions in the law that provides for the zero hour rule.