The role of the TARGET system in the European financial integration

Résumé du document

When Euro was introduced in 1999 as the European single currency, a large value payment system was also set up. The so-called Trans-European Automated Real-time Gross settlement Express Transfer (TARGET) system was expected to be the basis of both financial integration and European Central Bank (ECB) monetary policy. TARGET is actually a Real Time Gross Settlement (RTGS) system: that is to say, a network that brings intraday settlement in central bank money. According to the ECB, "security and business continuity has always been one of TARGET key features". Eight years later, we can wonder whether TARGET has met its objectives. Everyone agree with the ECB standpoint: TARGET has enabled the rapid integration of the money market. In 2002, the Governing Council of the ECB decided to revamp the TARGET System , so as to adapt it to the European enlargement process. What are the features of the current system, and why is TARGET 1 no more efficient enough? Which enhancements are going to be set up in the coming months?

Extraits

[...] Judging from the ECB figures, TARGET has become together with the American system (Fed wire Funds Service in the United States), one of the two world biggest large-value payment systems. In fact, in 1999 and 2000, its first year, payments with TARGET amounted to 163,000 payments a day (in value, it represents billion). Four years later transfers were processed with TARGET, that amount at about billion. TARGET 1 needs for changes While TARGET has successfully met its objectives, ECB took the decision of revamping it. There are actually some needs for change in the European payment network. [...]

[...] Payments across Europe have to be free and SEPA actually seems to be the best way to full fill the financial integration, given the requirements of Eurosystem. The goal set by Eurosystem is clear: European payments have to become as easy as domestic payments. SEPA also aim at providing a higher level of security and efficiency than the current best national system. To clarify, daily operations such as credit transfers and card payments in the European area are going to be as cheap as in the national area. [...]

[...] To increase TARGET efficiency, the European Banking Federation published a “guideline of liquidity management”. This guide promotes the early processing of payments through unrestricted provision for daily-transfers. Eurosystem actually makes a collateral policy that consists in use of an assets list, which meet the requirements needed in term of provision. These eligible assets registered by Eurosystem have contributed to the low time-consuming transfers. TARGET can be considered as a pillar of the European financial integration since; it is the compulsory way of settlement for the large value payment in the euro area. [...]

[...] The decentralisation of the system would make it very complicated for the new coming countries to be well integrated within the euro land. As explain the ECB, “each software modification has to be implemented in 16 platforms in 16 different ways”. And we can imagine how difficult it could be if the 27 EU members wanted to accede to the euro. The reliability of the TARGET system would be put in jeopardy. For all these reasons, the fully decentralised TARGET system is not adapted to the current needs of the European financial integration. [...]

[...] To be more efficient, TARGET operates between 7 a.m. and 6 p.m. CET, and as well as common closing days. There is no value limit for transfers, and furthermore both customers and companies are allowed to use TARGET through their bank. But, the retail payments are not the main activity of TARGET. Customer's use of TARGET may actually be only temporary, because of the attempts of the banking community to create a Single Euro Payment Area (SEPA), partly based on European infrastructures for retail payments. [...]