Make the liquidity cost of gross settlement concrete with numbers, because "gross settlement requires more liquidity" is easy to say and easy to underestimate until you watch a single bank's reserve account move hour by hour across one ordinary business day. A bank's reserve balance opens the day at a known level; over the day it has several large RTGS payments to send (debits, arriving whenever its customers instruct them) and several to receive (credits, arriving whenever counterparties happen to pay it), and under gross, real-time settlement, each of those events posts to the reserve account the instant it occurs, in whatever order they happen to arrive, with no netting against anything expected later the same day.
Worked example: a bank's reserve balance over one day
| Time | Event | Reserve balance |
|---|---|---|
| 09:00 opening | : | ₹10,00,00,000 (₹10 crore) |
| 09:00 | RTGS payment sent | −₹6,00,00,000 → ₹4,00,00,000 |
| 10:00 | RTGS payment sent | −₹3,50,00,000 → ₹0,50,00,000 |
| 11:00 | RTGS payment received | +₹2,00,00,000 → ₹2,50,00,000 |
| 13:00 | RTGS payment sent | −₹4,00,00,000 → −₹1,50,00,000 |
| 14:00 | RTGS payment received | +₹7,50,00,000 → ₹6,00,00,000 |
| 16:00 | RTGS payment sent | −₹1,50,00,000 → ₹4,50,00,000 |
| 17:00 closing | RTGS payment received | +₹3,00,00,000 → ₹7,50,00,000 |
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Read the 13:00 row carefully: the bank's reserve balance goes negative (a real intraday overdraft) even though its balance recovers comfortably by day's end. That overdraft is not a bookkeeping curiosity; a bank cannot actually hold a negative balance at the central bank unfunded, so it must draw on an intraday liquidity facility, in India, the RBI extends exactly this kind of facility to RTGS members against eligible collateral, to be reversed by end of day (check the current terms at rbi.org.in); in the US, the Federal Reserve's Payment System Risk (PSR) policy governs and prices exactly this kind of Fedwire "daylight overdraft" (check the current parameters, caps, collateral requirements, and pricing are all set by Fed policy and revised periodically). Compare the bank's peak intraday shortfall (the ₹1.5 crore it was overdrawn at 13:00) against its net change for the whole day (closing ₹7.5 crore minus opening ₹10 crore = −₹2.5 crore): these are two different numbers, computed from the same set of events, and the gap between them is precisely intraday liquidity's price tag. A bank on a net-settlement rail carrying the identical set of underlying obligations would never see that intraday dip at all, nothing would actually move until the cycle's single net figure settles at day's end, at which point only the ₹2.5 crore net change would need funding, never the ₹1.5 crore intraday trough. Gross settlement bought this bank instant, irrevocable, per-transaction finality all day; the price was a real, collateral-backed overdraft it would never have needed to fund under a netted rail.