What is the term used for the movement of funds between two Payment Service Providers (PSPs) in their central bank accounts?

The term that describes the movement of funds between two Payment Service Providers (PSPs) in their central bank accounts is "settlement in central bank money." This process refers specifically to the final and irrevocable transfer of funds that takes place in the accounts held by financial institutions at the central bank.

When a transaction occurs between two PSPs, the settlement process ensures that the payment is completed by transferring the necessary funds from one PSP's central bank account to another. This type of settlement is essential because it reduces counterparty risk and enhances the safety and efficiency of the payment system.

Settlement in central bank money offers a high level of trust as it involves institutions using the currency issued by a country's central bank. This distinguishes it from other types of transfers that may occur in commercial bank money, where the funds are transferred between accounts in the banking system but do not involve the central bank's balance sheets directly. Understanding this concept is crucial in grasping how payments are finalized and the importance of central bank reserves in the overall payments ecosystem.