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The role of the TARGET system in the European financial integration

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  1. Introduction.
  2. Advent and development of TARGET 1.
    1. Distribution of liquidity.
    2. Payments between European countries before 1999.
    3. Setting up of a European payment system.
    4. A pillar of the European financial integration.
  3. TARGET 1 needs for changes.
    1. Revamping of TARGET 1.
    2. The main goals defined by the ECB.
  4. The European financial integration and the single-currency area.
  5. Conclusion.
  6. Bibliography.

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. [...]

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