TARGET2

TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem. It is one of the world's largest payment systems, primarily used for large-value transactions between banks and other financial institutions within the European Union (EU).

Overview

TARGET2 is a pivotal component of the European financial infrastructure, facilitating the efficient movement of euros across borders within the EU. It ensures the swift and secure processing of payments, contributing significantly to the stability and integration of the Euro area financial market. The system is used not only for interbank transactions but also for monetary policy operations of the European Central Bank (ECB) and other central banks in the EU.

History

TARGET2 was launched in November 2007, succeeding the original TARGET system that had been in operation since 1999. The transition to TARGET2 was aimed at enhancing the efficiency and scalability of the system to better serve the expanding EU. It consolidated the previously fragmented national RTGS systems into a single, harmonized platform.

Functionality

The core function of TARGET2 is to provide real-time processing of cross-border and domestic payment transactions in euro. It operates on a single shared platform, offering high levels of reliability, availability, and performance. Payments in TARGET2 are settled one by one on a continuous basis, with immediate finality, meaning that transactions are irreversible once processed.

Participants

TARGET2 is accessible to a wide range of participants, including central banks, commercial banks, and other financial institutions that hold an account with a national central bank in the Eurosystem. This broad participation base enhances the system's reach and utility in facilitating euro liquidity management across the continent.

Benefits

The benefits of TARGET2 include:

• Enhanced efficiency in the settlement of euro transactions
• Reduced systemic risk through real-time processing and immediate finality
• Improved integration of the European financial market
• Support for the implementation of the Eurosystem's monetary policy

Challenges and Criticisms

Despite its advantages, TARGET2 has faced criticism, particularly concerning the imbalances that have arisen between national central banks within the Eurosystem. These imbalances reflect disparities in the flow of payments between countries, raising concerns about potential risks to financial stability and the sustainability of the system in the face of economic shocks.

Future Developments

The Eurosystem is continuously working on enhancing TARGET2 to ensure it remains at the forefront of global payment systems. Future developments may include further integration with other European payment systems, improvements in cybersecurity measures, and the incorporation of new technologies to facilitate faster and more efficient payment processing.

See Also

• European Central Bank
• Eurosystem
• Real-time gross settlement
• European Union