What is the function of the CHIPS payment system?

The CHIPS payment system, which stands for the Clearing House Interbank Payments System, primarily functions as a large dollar funds transfer system. It is designed to facilitate the efficient transfer of significant amounts of money between banks, primarily for transactions that exceed a certain monetary threshold. This characteristic makes it distinct from systems that handle smaller or routine transactions, such as those used for consumer retail payments.

In CHIPS, participants are usually large financial institutions that engage in high-value transactions for various purposes, including interbank lending, settlement of foreign exchange transactions, and corporate payments that require immediate clearing and settlement. The system effectively manages the flow of funds and ensures that the transactions are settled in a secure and efficient manner, dealing primarily with amounts that often surpass $100,000.

This focus on large dollar transactions explains why the other options are less applicable to the CHIPS payment system. It does not operate as a local bank clearinghouse for low-value checks or as a digital wallet for peer-to-peer transactions, nor is it utilized mainly for processing smaller, everyday transactions.