Money, payments systems, limited participation, and central banking

A limited participation model is constructed to capture the role of a centralized payments system in conducting central bank's policies. The government controls a money stock through the management of collateral requirements for the payments system as payment policy and open market operations as monetary policy. In equilibrium, due to limited participation, monetary policy whose effects are asymmetric across economic individuals may deteriorate some individual welfare. However, payment policy may wash out this distortion through an adjustment in the choice of credit-settlement types without deteriorating any individual welfare.