The Payment System of
The Payment System of
The Payment System of
T H E E U RO S YS T E M S PAY M E N T S YS T E M
TABLE OF CONTENTS
THE CURRENT TARGET SYSTEM
Structure Objectives Achievements
5 5 5
WHY TARGET2?
TARGET users requirements Benefits from economies of scale EU enlargement
6 6 7
8 8 9 9 10
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THE CURRENT
TARGET
SYSTEM
Structure
TARGET (the Trans-European Automated Real-time Gross settlement Express Transfer system) has a decentralised structure and consists of 15 national real-time gross settlement (RTGS) systems and the ECB payment mechanism (EPM), which are all interlinked. It follows the principle of a minimum level of harmonisation.The approach of interconnecting existing infrastructures was agreed in 1994 as the best way of ensuring that the system would be operational from the very start of Stage Three of Economic and Monetary Union (EMU).
Objectives
TARGET was developed to meet three main objectives: (i) to provide a safe and reliable mechanism for the settlement of euro payments on an RTGS basis; (ii) to increase the efficiency of cross-border euro payments; and, most importantly, (iii) to serve the needs of the monetary policy of the ECB.
Achievements
More than 40,000 banks and branches can be addressed via TARGET. A daily average of more than 253,000 transactions (domestic and cross-border) were processed in 2002, with an average daily value of more than EUR 1,500 billion.TARGETs market share of large-value euro payment systems traffic is very significant, with the system processing almost 85% in terms of value and 59% in terms of volume. Single money market rates have been achieved from the beginning of Monetary Union. It can thus be concluded that TARGET has successfully met its objectives.
WHY
TARGET2?
TARGET users requirements
Credit institutions increasingly perceive the euro area as one single payments market. They therefore expect to receive the same service everywhere. The principle of minimum harmonisation for the TARGET system, its infrastructure and interfaces has become less and less acceptable.
EU enlargement
Acceding country central banks (ACCBs) will have the possibility but not the obligation to connect to TARGET as from the date of their joining the European Union (2004). In this context, ACCBs might decide for reasons of cost-effectiveness to connect to TARGET without the need to operate an own RTGS. Participation in TARGET will be compulsory only when they join Economic and Monetary Union.
Acceding country central banks will have the possibility but not the obligation to connect to TARGET as from the date of their joining the European Union (2004). Participation in TARGET will be compulsory only when they join Economic and Monetary Union.
WHAT IS
NEW
REMAIN?
Considering all drivers for change, the Governing Council of the ECB defined the strategic direction for TARGET2 by establishing the following principles for the development of the system.
The design of the shared platform will allow each central bank which joins to preserve the business relationships with its banks, including those related to monetary policy operations.
All platforms that are part of TARGET2 will be subject to the same guiding principles, for example, for pricing, cost recovery, access, core services, etc.
Cost-effectiveness
TARGET2 will be based on the principle of cost-effectiveness, which implies that the single price will be based on the most efficient RTGS system. Those RTGS systems which have not met the cost recovery requirement within four years of the start of TARGET2 will be compulsorily closed. The respective NCBs will then have to provide their RTGS services via the shared platform.
The Governing Council of the ECB decided that a shared platform should be created for the start of TARGET2. For the first three years of operation, TARGET2 will thus consist of a single shared platform (SSP) and the remaining national RTGS systems. After this three-year period, an assessment will be carried out to establish whether the SSP can satisfy the needs of all central banks and their banking communities not wishing to maintain an individual platform.
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WAY
FORWARD
IN THE ESTABLISHMENT OF
TARGET2
The preparation of TARGET2 can be divided into three phases: (i) the pre-project phase; (ii) the project phase; and (iii) the testing and trial operations phase.
TARGET2 is currently in the pre-project phase, planned to continue until autumn 2004.
The new system will become operational during the second half of this decade.
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Alternatively, hard copies can be ordered from any of the NCBs or from the ECB at the following address:
European Central Bank Press and Information Division Kaiserstrasse 29 60311 Frankfurt am Main Germany Fax: +49 69 1344 7404
Further information is available from target.hotline@ecb.int Printed by: Kern & Birner GmbH & Co. Frankfurt am Main ISBN 92-9181-378-8