When Euro was introduced in 1999 as the European single currency, a large value payment system was also set up. The so-called Trans-European Automated Real-time Gross settlement Express Transfer (TARGET) system was expected to be the basis of both financial integration and European Central Bank (ECB) monetary policy. TARGET is actually a Real Time Gross Settlement (RTGS) system: that is to say, a network that brings intraday settlement in central bank money. According to the ECB, "security and business continuity has always been one of TARGET key features". Eight years later, we can wonder whether TARGET has met its objectives. Everyone agree with the ECB standpoint: TARGET has enabled the rapid integration of the money market. In 2002, the Governing Council of the ECB decided to revamp the TARGET System , so as to adapt it to the European enlargement process. What are the features of the current system, and why is TARGET 1 no more efficient enough? Which enhancements are going to be set up in the coming months?
[...] TARGET can be considered as a pillar of the European financial integration since; it is the compulsory way of settlement for the large value payment in the euro area. In this way, more than 43,400 banks participated in TARGET in 2003. The acceptance of the system is related to its smoothness and safeness. In spite of its decentralized basis, TARGET has successfully worked over the past few years: in 2003, its level of availability amounted to 99.79 TARGET has proven to be reliable. [...]
[...] Euro system asks for abolishing technical, juridical and commercial barriers between the various national banking markets. To encourage this financial integration, the European Commission also presented on December the 1st a directive proposition that is supposed to provide all the European payments the same juridical framework. To what extend does such a financial integration revamp the European economic area? Regarding companies, as said before, it would be possible for them to have only one bank account. European firms will be more cost and time-efficient by centralizing their treasury and liquidity management. [...]
[...] Advent and development of TARGET 1 According to the Governing Council of the ECB, TARGET makes distribution of liquidity more uniform and result in a homogeneous short-term interest rate. Liquidity and interest rate homogeneity are regarded as the pillars of financial integration. Indeed, liquidity and uniformity make European market more attractive for the investors: if uniform, the market offers scale economy opportunities; and a high level of liquidity results in a lower level of risks and therefore encourages investments across the monetary area. [...]
[...] Customer's use of TARGET may actually be only temporary, because of the attempts of the banking community to create a Single Euro Payment Area (SEPA), partly based on European infrastructures for retail payments. That is why, retail payments are certainly going to decrease in the coming few years. Nevertheless, in 2003, customer's payments amounted to 48% of the inter-member state volume. One of the main advantages of TARGET, as an RTGS (Real-Time-Gross- Settlement) system, is that payments are quickly processed. [...]
[...] For all these reasons, the fully decentralised TARGET system is not adapted to the current needs of the European financial integration. To sum up, the main goals defined by the ECB are linked to the necessity of adapting TARGET to the enlargement process of the euro area, to increase cost—efficiency, and last but not least, to enable TARGET to better meet consumers needs. In this way, a public consultation occurred in December 2002 to take into account banks and consumers views as regards the financial enhancement that TARGET 2 will have to deal with. [...]
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