The successful operations of both Macedonian Interbank Payment System (MIPS), the RTGS system of which the central bank is both the owner and operator and Klirinski Interbankarski Sistemi Skopje (KIBS), of which the central bank is the settlement agent, have contributed to a high level of confidence throughout the years and have a positive effect on the stability of the banking and financial system and the economy as a whole. To conclude, commercial banks transferring among them funds held in accounts with central banks have facilitated the proper functioning of the banking and financial systems and mitigated disruptions and instability globally. This historical development has been accompanied with a slow, but steady movement towards a higher velocity of money circulation. Settling payments in accounts at the central bank still provides the link with the two main tasks of monetary policy and financial stability. While steering monetary conditions the central bank cooperates with commercial banks and thereby reduces transaction costs. This reality is a layered architecture in which central bank money is the ultimate settlement asset in the economy. The positive network externality is best described by referring to the risk reduction, service assurance and competitive neutrality the central bank provides. Using money held in accounts at the central bank to effect payment is generally regarded as risk free, service is assured even in extraordinary times of global and domestic crises, while using the central bank as a hub ensures that payment systems’ participants are not forced to rely on actual or potential competitors for payment.

Let me devote the central part of this welcome speech to these different, yet interrelated links. Monetary policy impulses are transmitted from those financial institutions that have a direct relationship with the central bank to other institutions and households. The central bank typically conducts its monetary policy only with designated financial institutions, mostly commercial banks rather than with other economic agents. As a result other economic agents rely on the designated financial institutions that have a direct relationship with the central bank. The functioning of the transmission relies on the smooth functioning of payment infrastructures enabling transactions of these institutions with the central bank, as well as amongst themselves at the interbank market. If the operation of payment systems is underdeveloped, these designated financial institutions choose to keep a relatively large buffer of central-bank money to help them manage their liquidity, which in turn leads to weaker than intended monetary-policy impulses from the central bank. But in general, after the payment systems in the economy have reached a certain threshold, the influence of the payment systems on monetary policy needs to be assessed not by efficiency alone, but by reference to the velocity of money, defined as the average frequency with which a unit of money is spent in a specific time, under the assumption of a given money supply. Velocity of money circulation is endogenously determined by the economic agents’ decisions regarding liquidity holding, lending, borrowing, investing, consumption and labour.