TARGET for Acceding Countries

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

2. TARGET for Acceding Countries Introduction

3. TARGET in Acceding Countries 1) TARGET1 2) Rationale for TARGET2 3) The case of Acceding Countries

4. 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)

5. 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 !!

6. 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

7. 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.

8. 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)

9. 1) TARGET1 What did we achieve with TARGET1? With 1,7 trillion euros settled everyday, TARGET is the biggest payment system in the world

10. TARGET in Acceding Countries 1) TARGET1 2) Rationale for TARGET2 3) The case of Acceding Countries

11. 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

12. 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

13. 2) Rational for TARGET2 TARGET Interlinking Network NCB ILC NCB 1 NCB 2 Single Shared Platform ILC NCB 3 . . . NCB x ILC NCB

14. 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 ?...

15. TARGET in Acceding Countries 1) TARGET1 2) Rationale for TARGET2 3) The case of Acceding Countries

16. 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

17. 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

18. 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)

19. 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

20. 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

21. TARGET for Acceding Countries Conclusion