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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