Abstract
by James B. ThomsonThe 1980 Monetary Control Act requires the Reserve Banks to recover their costs ofproviding payments services over time, including a normal return on capital – that is, thesame after tax return on equity that a private firm would require. To date, this privatesector adjustment factor has been estimated and applied as a single hurdle rate for allReserve Bank payments services. Capital budgeting theory suggests that firms should usea different hurdle rate for each distinct type of activity according to its risks. For ReserveBank payments services, this might entail estimating separate private sector adjustmentfactors for paper-based services and for electronic services. Alternatively, a single hurdlerate of capital could be used for all services if capital is allocated to each serviceaccording to its risk.
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