TARGET2 is a payment system owned and operated by the Eurosystem.
It is the leading European platform
for processing large-value payments
and is used by both central banks
and commercial banks
to process payments in euro in real time.
What are payment systems?
Modern economies rely on the safe and efficient flow of transactions. Payment systems provide the plumbing that allows money to flow in the economy. TARGET2 is a payment system that enables EU banks to transfer money between each other in real time. This is known as real-time gross settlement (RTGS).
Why is TARGET2 important?
The ECB has a keen interest in ensuring that payment systems and other market infrastructures function smoothly and effectively, to maintain financial stability in the euro area. This makes TARGET2 a key building block of financial integration in the EU. It enables the free flow of money across borders and supports the implementation of the ECB’s single monetary policy.
How does TARGET2 work?
The platform is owned and managed by the Eurosystem. Put simply, it works as follows:
- Bank A and Bank B both have accounts with a central bank
- A payment in euro is to be made from Bank A to Bank B
- Bank A submits the payment instructions to TARGET2
- Bank A’s account is debited, and Bank B’s account is credited – the payment is settled
- TARGET2 transfers the payment information to Bank B
Who can use TARGET2?
EU central banks and their national communities of commercial banks. More than 1,700 banks use TARGET2 to initiate transactions in euro, either on their own behalf or on behalf of their customers. Taking into account branches and subsidiaries, more than 55,000 banks worldwide (and all their customers) can be reached via TARGET2.
Source: European Central Bank
Published: 29 June 2016
The above presentation was created for educational purposes.