Payment Systems

In 2003, the value of foreign-exchange transactions involving Danish kroner totalled kr. 5,097 billion, while total pay-ins in Danish kroner amounted to kr. 413 billion. This is equivalent to liquidity savings of more than 90 per cent by netting positions in Danish kroner. Several central banks, including Danmarks Nationalbank, are considering the option of settling foreign-exchange transactions via CLS Bank.

Retail payments

Retail payment patterns in Denmark have changed significantly as a result of e.g. technological advances. In 2003, the Dankort (debit card) was used more than 535 million times, i.e. on average more than 125 times a year by each Dane over the age of 18. The Dankort has thus long surpassed cheques as the most frequently used means of payment, cash excluded, cf. Chart 27. Use of BetalingsService (direct debit), whereby the payer allows the payee to debit invoices directly from the payer's account, increased steadily up to and including 2002. Since then it has stabilised at just under 140 million payments.

In the summer of 2003, agreement was reached in respect of the Act on Certain Means of Payment, cf. p. 55, e.g. allowing banks to charge fees to payees in connection with Dankort payments. In return, the banks are to develop a chip-based Dankort. The existing Dankort has a magnetic strip, and consequently all cards will be exchanged for chip-based cards during 2004. One advantage of chips over magnetic strips is that they are more difficult to counterfeit.

Several banks have begun to issue Visa Electron payment cards, mainly to customers under the age of 18, who are not eligible for the Dankort. These cards include balance control, so excessive withdrawal is not possible. Visa Electron is an international card and therefore subject to an exemption from parts of the Act on Certain Means of Payment. Until 1 January 2005, a fee of 0.75 per cent of the transaction amount will be charged to shops. Subsequently banks may charge up to 0.40 per cent of the transaction amount, up to a maximum of kr. 4 per transaction.

If a Danish card with balance control is developed, the banks will be able to charge a fee of up to kr. 0.75 per transaction to the payee for payment transactions where the card is used.

Oversight

In recent years, central banks worldwide have focused more and more on the oversight of payment and settlement systems. This is, inter alia, a result of increasing awareness that the systems could potentially contribute to spreading credit or liquidity problems and may thus have implications for financial stability.^[2]

Danmarks Nationalbank's oversight of the Danish payment and settlement systems is based on a number of internationally accepted standards. For systemically important payments systems these are the 10 Core Principles^[3], while securities settlement systems are subject to the 19 G10/IOSCO recommendations^[4]. Danmarks Nationalbank has previously assessed Kronos and the Sumclearing in terms of the Core Principles^[5]. An assessment of the VP System on the basis of the G10/IOSCO recommendations is expected to be completed during 2004.

ESCB-CESR standards
In 2001, the ESCB and CESR^[6] began to adapt the G10/IOSCO recommendations for securities settlement systems to European conditions. In August 2003, ESCB-CESR published a draft report with proposed adaptations for public consultation. Among other things, it is suggested that certain recommendations regarding central securities depositories should also apply to custodian banks with considerable securities settlement activities. The report has not been finalised yet. The adaptations are expected to lead to tightening of the G10/IOSCO recommendations.

Oversight of CLS Bank
The Federal Reserve Bank of New York has the overall responsibility for oversight of the international settlement system for foreign-exchange transactions, CLS Bank. The national central banks, including Danmarks Nationalbank, participate in the work as co-overseers. It is thus the task of Danmarks Nationalbank to oversee that settlement in Danish kroner is sufficiently robust and does not compromise the overall security of CLS settlements. Oversight of CLS Bank is coordinated between the Federal Reserve Bank of New York and the other central banks in the G10 working group, Sub-Group on Foreign Exchange Settlement Risk (FXSR), in which Danmarks Nationalbank has participated since 2001. Oversight by the Federal Reserve Bank of New York is based on the Lamfalussy standards^[7], and under the auspices of the FXSR CLS Bank has been assessed against these standards. CLS Bank is found to meet the Lamfalussy standards.

IT problems at Danske Bank
In March 2003, Danske Bank was affected by serious IT problems lasting for several days. However, the problems had no major impact on the payment and settlement systems in the form of systemic effects, where problems within one system rub off on other systems or participants.

On previous occasions, Danmarks Nationalbank has performed simulations in Kronos and the Sumclearing that have shown modest consequences if the largest single participant in terms of value in the system experienced financial or operational difficulties on a given day.^[8] The events at Danske Bank confirmed these results, and the Danish payments infrastructure must be said to be quite robust since it is able to handle a situation in which a major player experiences difficulty in submitting payments for a relatively long period.

Power outage
On 23 September 2003 shortly after noon, eastern Denmark was hit by an extensive power outage lasting for several hours. The consequences for the payment systems were modest since most participants have emergency power supplies, and in any case payments via Kronos are mainly settled in the morning hours. However, it was decided to postpone the closing time for Kronos in Danish kroner by half an hour to give participants affected by the power outage an opportunity to settle their payments.

Development of the payments infrastructure

Scandinavian Cash Pool
Scandinavian Cash Pool, SCP, was launched on 24 March 2003. SCP is an automated system for pledging of cross-border collateral between Denmark, Norway and Sweden. The system was developed with a view to facilitating Scandinavian CLS participants' access to intraday liquidity in the Scandinavian currencies. SCP has primarily been used to pledge collateral in Denmark for liquidity in Norway and Sweden.^[9]

Target2
In October 2002, the Governing Council of the ECB made a strategic decision concerning the next generation of Target, known as Target2. The principal element is the establishment of a common platform which the central banks, including those in the non-euro-area member states and the accession countries, may use instead of their own national subsystems. Danmarks Nationalbank takes a positive approach to participation in the common platform.

The decision of the Governing Council furthermore entails that Target2 is to offer users a harmonised service level across national borders. This is not the case for the current version of Target, which is characterised by considerable differences in the services offered by the individual national subsystems. In 2003, a key element of the development of Target2 was the definition of standard services to be offered by all central banks.

A statement of the principles for and structure of Target2 was published for public consultation in December 2002, and the definition of the standard services is to a large extent based on the requirements put forth by users in their consultation responses.

In the summer of 2003, the German, French and Italian central banks announced that they would join forces to prepare a proposal for a common platform in Target2. This platform will be based primarily on existing systems at the three central banks. A core element of the proposal is the so-called decentralisation principle, entailing that account relationships remain with the national central banks. Another key issue will be business continuity planning in view of the system's central position in the European payments infrastructure. The three central banks expect the platform to be ready by 1 January 2007. Central banks opting for the common platform will have to make a number of adjustments to their national payment infrastructures before migrating to the new platform.

New framework for intraday liquidity in the ECB
In June 2003, the ECB decided that access to the use of certain Danish krone- and euro-denominated bonds as collateral for intraday liquidity in euro at five euro area central banks ("out-collateral") was to cease as from 1 July 2003. The decision was based on limited demand among Eurosystem counterparties, as well as a wish for a more uniform collateral basis for liquidity in euro.

The ECB has also determined that Danish euro-denominated bonds can in principle be pledged as collateral for liquidity in euro at the Eurosystem central banks. However, the Eurosystem requirement that eligible securities must be immediately accessible for counterparties in all euro area member states implies that the bonds must be issued directly in the euro area, or that VP Securities Services must establish links to a central securities depository in each euro area member state.

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