control, central banks steer short - term interbank interest rates, which, via the transmission mechanism of monetary policy, have an impact on the price level. another objective of central banks is to ensure the smooth functioning of the payment system. central banks provide intraday liquidity to bridge the timing mismatch between banks ’ incoming and outgoing payments during the day. this not only facilitates intraday liquidity management of banks, but also makes payment gridlocks less likely and therefore contributes to financial stability. payment systems clearly matter for monetary policy. monetary policy implementation today means steering short - term interest rates. if you are the treasurer of a bank and plan for the end - of - day settlement of your accounts, uncertainty about whether expected incoming payments will actually be received is obviously a major issue. it does not make an immediate difference if expected incoming payments are at risk for payment system reasons, or because the payments may not have been initiated. in both cases, the treasurer will need to look for alternative funding, and if there are no internal buffers, will turn to the interbank market for overnight funds. there, the treasurer will be ready to pay a premium and will thus bid up rates. if uncertainty about incoming payments generally increases and affects all banks, be it for payment system or other reasons, banks will all tend to enter the interbank market on the buy side and will bid up the overnight rate accordingly. this is a monetary policy issue and will imply the need for the central bank to inject excess reserves into the system to bring interest rates down again. while payment system disruption may hence potentially have an impact on monetary policy, central banks have found ways of safeguarding price stability, while at the same time ensuring the smooth functioning of the payment system. this is achieved by drawing a clear line between providing intraday liquidity for payment system purposes and providing credit for monetary policy implementation. let me therefore turn briefly to these two types of liquidity provision by central banks. central banks need to define the conditions under which they provide these two types of liquidity. in particular, they need to decide on the fee / interest they wish to charge and on the level and type of collateral they consider appropriate. allow me to discuss briefly both features. for further details see charles m. kahn ( 2006 ) : why pay? an introduction to payment economics. central banks typically provide intraday liquidity on more generous terms than overnight credit. why? to answer this question, consider the following alternatives : imagine that

and undertake structural reforms, national governments retain the key powers to improve the performance of their economies. if the terms of the stability and growth pact are adhered to, there is sufficient flexibility to allow automatic stabilisers to work in the event of cyclical fluctuations. together with the social partners, governments have a key responsibility to act decisively to ease the unemployment problem in europe. structural reforms provide the only means of achieving lasting reductions in unemployment, preparing for the ageing of the population and reducing the burden of government debt.