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You still have to deliver banknotes to settle balances occasionally?

There is no way to completely eliminate settlement risk.

The clearing banks issue Hong Kong Bank Notes, except for the lowest denomination HK $10 notes which are issued by the HKMA.

These notes get credited to bank accounts when paid in to a branch, thereby generating a (real time) credit in the system. While they are circulating, the issuers benefit from the Seigniorage.

The only settlement risk here is of counterfeit currency notes.

This is slightly different from the situation in Scotland, where Scottish Bank Notes must be matched - during the working week - by funds deposited with the Bank of England. Over the week-end the Scottish banks benefit from the Seigniorage....an interesting hybrid.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Dec 3rd, 2010 at 09:38:45 AM EST
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