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TARGET for Acceding Countries

Jean-Michel GodeffroyDirector General Payment Systems

European Central Bank

Conference in Magyar Nemzeti Bank, Budapest 9th October 2003

by

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Introduction

TARGET for Acceding Countries

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1) TARGET1

2) Rationale for TARGET2

TARGET in Acceding Countries

3) The case of Acceding Countries

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1) TARGET1

• To contribute to the smooth conduct of monetary policy and the singleness of the money market

• To improve the soundness of payment systems (reduction of systemic risk)

• To increase the efficiency of cross-border payments in euro

Why did we build TARGET ?

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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 uncertaintyDo it with what you have !!

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TARGETTARGETInterlinkingInterlinking

NetworkNetwork

ILC

NCBNCB NCBNCB

NCBNCB

1) TARGET1

ILCNCBNCB

ILCNCBNCB

ILCNCBNCB

ILCNCBNCB ILC

ECBECBILC

NCBNCB

ILC

ILCNCBNCB

ILC

NCBNCB

ILC

NCBNCB

ILC

NCBNCBILC

NCBNCBILC

NCBNCBILC

NCBNCBILC

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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.

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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)

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1) TARGET1

With 1,7 trillion euros settled

everyday, TARGET is the biggest

payment system in the world

What did we achieve with TARGET1?

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1) TARGET1

2) Rationale for TARGET2

TARGET in Acceding Countries

3) The case of Acceding Countries

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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

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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

2) Rational for TARGET2

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TARGETTARGETInterlinkingInterlinking

NetworkNetwork

ILC

NCBNCB

NCBNCB

ILC

ILC

SingleSingleSharedShared

PlatformPlatform

NCB 1NCB 1

......

NCB 2NCB 2

NCB 3NCB 3

NCB xNCB x

2) Rational for TARGET2

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TARGET 2: Consequences

After 4 years, TARGET will work on a single platform

Is it reasonable to launch an individual platform ?...

SingleSinglePlatformPlatform

NCB 1NCB 1

......

NCB 2NCB 2

NCB 3NCB 3

NCB xNCB x

2) Rational for TARGET2

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1) TARGET1

2) Rationale for TARGET2

TARGET in Acceding Countries

3) The case of Acceding Countries

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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

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3) The case of Acceding Countries

Problem of timing

Before EMU: to join or not to join ?

EU entryEU entry(May 2004)(May 2004)

EMU entryEMU entry(May 2006 at the earliest)(May 2006 at the earliest)

TARGET accessTARGET accessis optionalis optional

TARGET accessTARGET accessis mandatoryis mandatory

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EU entryEU entry(May 2004)(May 2004)

EMU entry EMU entry (May 2006 at the earliest)(May 2006 at the earliest)

TARGET2 go live date TARGET2 go live date

Jan.2007 (?)Jan.2007 (?)

????

??

Need for a fallback solution

To join TARGET1 or to join TARGET2 ?

Problem of timing

3) The case of Acceding Countries

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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

3) The case of Acceding Countries

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

Germany

UK

Portugal

Sweden

Denmark

31,892,792

3,664,381

921,236

83,211

109,261

Volume per year

3) The case of Acceding Countries

Is there really a business case?

Figures for 2002

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Conclusion

TARGET for Acceding Countries