Denmark Migrates to TARGET2

Morten Valentiner, Payment Systems

THE EUROSYSTEM'S NEW SINGLE PAYMENT SYSTEM

In connection with the launch of the euro in 1999 the trans-European payment system, TARGET, was introduced in all the then 15 EU member states. The system was intended for settlement of large, time-critical payments in euro. Technically, TARGET was based on links between the national payment systems and the European Central Bank's system. In the period November 2007 to May 2008, member states participating in TARGET migrated to the new trans-European payment system, TARGET2.

TARGET2 replaces the national interbank payment systems in the euro area, whereby special national functionality and provisions are replaced by a harmonised system where costs for system development, reduction of operational risk, etc. are shared by a large number of participants. The Eurosystem's monetary-policy operations are now handled in a uniform manner for all euro area participants via TARGET2. In TARGET2, all participants' accounts are placed on a single shared platform, which makes it considerably easier for participants with cross-border activities to handle liquidity and effect payments, etc. in euro. Moreover, such participants no longer need to participate in different national systems in order to settle payments or participate in securities settlement or retail payment systems in the member states where they operate. For most member states, migration to TARGET2 has meant less expensive settlement of interbank payments in euro, increased functionality for e.g. liquidity management, and enhanced protection against major system failures. For enterprises, etc. doing business in euro, the banks will have easier and more flexible access at lower cost to settlement of payments across national borders, which will mean considerably faster settlement of payments in euro at lower cost. TARGET2 is thus an important element of the infrastructure that supports a single market for financial services in the EU.

Danmarks Nationalbank has decided to participate in TARGET2 as Danish credit institutions conduct considerable business in euro. Moreover, maintenance of the existing Danish retail payment and securities settlement systems in euro requires participation in TARGET2. If Danmarks Nationalbank had decided not to participate in TARGET2, the 30 current participants in the Danish infrastructure for settlement in euro, including VP Securities Services and PBS, would either have had to settle payments in euro via a branch or subsidiary in the euro area or via a correspondent bank with access to TARGET2. The terms and conditions for Danish participants remain unchanged. Denmark must still observe the current restrictions applying to participating non-euro area member states, e.g. non-access to overnight liquidity in euro. Settlement of payments in kroner will still take place via Danmarks Nationalbank's own system, Kronos.

Further information about TARGET2 can be found at Danmarks Nationalbank's website, www.nationalbanken.dk, under Tasks -> Payment systems -> TARGET2.