What is meant by settlement in central bank money?

Settlement in central bank money refers specifically to the actual movement of funds between parties, typically facilitated through the central bank's payment systems. This process ensures that transactions are completed effectively, with the final transfer of funds taking place using the liabilities of the central bank, which are considered risk-free and highly liquid.

In the context of financial transactions, settlement is crucial as it marks the point at which the delivery of payment and the receipt of funds occur, thus completing the transaction. This is distinct from other processes in the payment lifecycle, such as clearing, which involves the reconciliation and confirmation of transaction details, but does not itself constitute the transfer of funds.

In contrast, issuing new currency relates to the central bank's role in managing the money supply and does not pertain to the movement of existing funds between entities. The clearing of payments through a third party refers to the intermediary steps taken to verify and process transactions before settlement occurs, whereas auditing of financial transactions focuses on compliance and accuracy, rather than the actual transfer of funds. Therefore, B accurately captures the core definition of settlement in the context of central bank money.