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

2. 08/07/20032 Introduction TARGET for Acceding Countries

3. 08/07/20033 1) TARGET1 2) Rationale for TARGET2 TARGET in Acceding Countries 3) The case of Acceding Countries

4. 08/07/20034 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 ?

5. 08/07/20035 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. 08/07/20036 TARGETInterlinkingNetwork ILC NCB NCB NCB NCB 1) TARGET1 ILC NCB NCB NCB NCB ECB NCB NCB NCB NCB NCB NCB NCB NCB

7. 08/07/20037 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. 08/07/20038 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. 08/07/20039 1) TARGET1 With 1,7 trillion euros settled everyday, TARGET is the biggest payment system in the world What did we achieve with TARGET1?

10. 08/07/200310 1) TARGET1 2) Rationale for TARGET2 TARGET in Acceding Countries 3) The case of Acceding Countries

11. 08/07/200311 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. 08/07/200312 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

13. 08/07/200313 TARGETInterlinkingNetwork ILC NCB NCB NCB ILC SingleSharedPlatform NCB 1... NCB 2 NCB 3 NCB x 2) Rational for TARGET2

14. 08/07/200314 TARGET 2: Consequences After 4 years, TARGET will work on a single platform  Is it reasonable to launch an individual platform ?... SinglePlatform NCB 1... NCB 2 NCB 3 NCB x 2) Rational for TARGET2

15. 08/07/200315 1) TARGET1 2) Rationale for TARGET2 TARGET in Acceding Countries 3) The case of Acceding Countries

16. 08/07/200316 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. 08/07/200317 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. 08/07/200318 EU entry (May 2004) EMU entry (May 2006 at the earliest) TARGET2 go live date Jan.2007 (?) ? ? ? Need for a fallback solution To join TARGET1 or to join TARGET2 ? Problem of timing 3) The case of Acceding Countries

19. 08/07/200319 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

20. 08/07/200320 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

21. 08/07/200321 Conclusion TARGET for Acceding Countries