Hierarchical Settlement System

A Hierarchical Settlement System is a structured process for clearing and settling transactions among banks and financial institutions. It operates in levels, where larger, central banks handle high-value or complex transactions, and smaller banks settle their payments through these central institutions. This system improves efficiency, reduces risk, and ensures that funds are transferred accurately and securely across the banking network. Essentially, it’s a layered framework that organizes the flow of money, making the entire process systematic and reliable, facilitating smooth financial operations within an economy.