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TARGET for Acceding Countries. by. Jean-Michel Godeffroy Director General Payment Systems European Central Bank. Conference in Magyar Nemzeti Bank, Budapest 9th October 2003. TARGET for Acceding Countries. Introduction. TARGET in Acceding Countries. 1) TARGET1. 2) Rationale for TARGET2.

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target for acceding countries

TARGET for Acceding Countries

by

Jean-Michel Godeffroy

Director General Payment Systems

European Central Bank

Conference in Magyar Nemzeti Bank, Budapest 9th October 2003

target in acceding countries
TARGET in Acceding Countries

1) TARGET1

2) Rationale for TARGET2

3) The case of Acceding Countries

slide4

1) TARGET1

Why did we build TARGET ?

  • To contribute to the smooth conduct of monetary policy and the singleness of the money market
  • To increase the efficiency of cross-border payments in euro
  • To improve the soundness of payment systems (reduction of systemic risk)
slide5

1) TARGET1

How did we build TARGET ?

  • Decentralisation principle
  • Minimum approach with regard to harmonisation of national RTGS systems

+ very strong political pressure

+ very big uncertainty

  • Do it with what you have !!
slide6

1) TARGET1

ECB

NCB

TARGET

Interlinking

Network

NCB

ILC

ILC

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

NCB

ILC

ILC

ILC

NCB

ILC

NCB

ILC

NCB

NCB

slide7

1) TARGET1

Special arrangements for the “outs”

Why? Until the last moment, nobody knew who would be “in” or “out”.

How? “out” NCBs may participate, but with some restrictions.

slide8

1) TARGET1

What did we achieve with TARGET1?

  • High processing capacity
  • No liquidity shortages
  • Very broad customer base
  • TARGET is the de facto standard for large-value payments in euro
  • Three main objectives have been met (single monetary policy, systemic risk reduction, increase in efficiency of cross-border payments in euro)
slide9

1) TARGET1

What did we achieve with TARGET1?

With 1,7 trillion euros settled everyday, TARGET is the biggest payment system in the world

target in acceding countries1
TARGET in Acceding Countries

1) TARGET1

2) Rationale for TARGET2

3) The case of Acceding Countries

slide11

2) Rational for TARGET2

However, TARGET1 has some drawbacks:

  • In terms of availability
  • In terms of customer satisfaction
  • In terms of costs
  • This will get worse with Acceding Countries
slide12

2) Rational for TARGET2

TARGET 2:principles and structure

  • Possibility to join a “shared platform”, but only one
  • Single price structure
  • Possibility to have an individual platform but obligation to recover costs after 4 years
slide13

2) Rational for TARGET2

TARGET

Interlinking

Network

NCB

ILC

NCB 1

NCB 2

Single

Shared

Platform

ILC

NCB 3

.

.

.

NCB x

ILC

NCB

slide14

NCB 1

NCB 2

Single

Platform

NCB 3

.

.

.

NCB x

2) Rational for TARGET2

TARGET 2:Consequences

After 4 years, TARGET will work on a single platform

  • Is it reasonable to launch an individual platform ?...
target in acceding countries2
TARGET in Acceding Countries

1) TARGET1

2) Rationale for TARGET2

3) The case of Acceding Countries

slide16

3) The case of Acceding Countries

TARGET and Acceding Countries

  • Acceding countries will have the possibility – but not the obligation – to connect to TARGET as from their joining the EU
  • Equal conditions as current non-participating central banks (DK, SE, UK)
  • Need to demonstrate the existence of a business case
  • TARGET access required only with EMU entry
slide17

3) The case of Acceding Countries

Problem of timing

Before EMU: to join or not to join ?

EU entry

(May 2004)

EMU entry

(May 2006 at the earliest)

TARGET access

is optional

TARGET access

is mandatory

slide18

3) The case of Acceding Countries

Problem of timing

To join TARGET1 or to join TARGET2 ?

TARGET2 go live date

Need for a fallback solution

Jan.2007 (?)

?

EU entry

(May 2004)

?

?

EMU entry

(May 2006 at the earliest)

slide19

3) The case of Acceding Countries

Is there really a business case?

Before EMU: no business case for a connection to TARGET

  • Example of Sweden and Denmark
  • Many banks belong to European banking groups
slide20

3) The case of Acceding Countries

Is there really a business case?

The attraction of TARGET in “out” countries is very small… except in the UK

Volume per year

Germany

31,892,792

UK

3,664,381

Portugal

921,236

Denmark

109,261

Sweden

83,211

Figures for 2002