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Understanding TARGET 2: The Eurosystem’s Euro Payment System from an Economic and Balance Sheet Perspective

Author

Listed:
  • Martin Handig

    (Oesterreichische Nationalbank, Financial Statements and Treasury Risk Monitoring Division)

  • Robert Holzfeind

    (Oesterreichische Nationalbank)

  • Clemens Jobst

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

TARGET2 – the Trans-European Automated Real-time Gross settlement Express Transfer System 2 operated by the Eurosystem – provides for the efficient settlement of cross-border payments in euro and is thus a key infrastructure component of European monetary union. TARGET2 claims and liabilities in the accounts of the euro area central banks have recently become a subject of public debate. However, TARGET2 balances by definition constitute intra- Eurosystem balances and are as such an integral part of the decentralized implementation of the single monetary policy. Considerable claims and liabilities can arise for various reasons, many of which are related to the normal functioning of the euro area and do not require an economic policy response. Changes in TARGET2 balances also do not imply any direct changes in the risk exposure levels of national central banks. At the same time, there is no denying that the Eurosystem is facing major challenges in its monetary and liquidity policy. TARGET2 balances are indeed currently high owing to the financial crisis, given the need to provide liquidity aid to the European banking system. Yet as soon as such liquidity aid is no longer necessary, following appropriate economic policy measures such as recapitalizing banks or measures to restore confidence in government solvency, TARGET2 balances will also decline.

Suggested Citation

  • Martin Handig & Robert Holzfeind & Clemens Jobst, 2012. "Understanding TARGET 2: The Eurosystem’s Euro Payment System from an Economic and Balance Sheet Perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 81-91.
    • Handle: RePEc:onb:oenbmp:y:2012:i:1:b:6
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    References listed on IDEAS

    as
    1. Martin Handig & Robert Holzfeind, 2007. "Euro Banknotes in Circulation and the Allocation of Monetary Income within the Eurosystem," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 150-163.
    2. Athanassiou, Phoebus, 2009. "Withdrawal and expulsion from the EU and EMU: some reflections," Legal Working Paper Series 10, European Central Bank.
    3. Clemens Jobst, 2009. "Monetary Policy Implementation during the Crisis in 2007 to 2008," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 53-77.
    4. repec:hum:wpaper:sfb649dp2011-035 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Pešić Ivana V. & Vanka Gajo M., 2014. "EU Crises Multiplier - From One Crisis To Another," Economic Themes, Sciendo, vol. 52(2), pages 215-241, June.
    2. PhilippineCour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0, pages 05-50, May.
    3. Martin Handig & Clemens Jobst & Doris Schneeberger, 2012. "The Cross-Border Movement of Euro Banknotes and Austria’s TARGET 2 Liabilities," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 32-52.
    4. Clemens Jobst & Claudia Kwapil, 2019. "Monetary policy of the Eurosystem and the OeNB’s balance sheet," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/19, pages 85-98.
    5. Raphael A. Auer, 2014. "What drives TARGET2 balances? Evidence from a panel analysis [What drives Target2 balances? Evidence from a panel analysis]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 29(77), pages 139-197.
    6. Stephen Wright & Charmaine Portelli, 2018. "The True Size of the ECB: New Insights from National Central Bank Balance Sheets," Birkbeck Working Papers in Economics and Finance 1807, Birkbeck, Department of Economics, Mathematics & Statistics.
    7. Miklos Vari, 2014. "Implementing monetary policy in a fragmented monetary union," Working papers 529, Banque de France.
    8. Philippine Cour-Thimann, 2013. "CESifo Forum Special Issue April 2013: Target Balances and the Crisis in the Euro Area," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 0(1), pages 05-50, May.
    9. Stephen Cecchetti & Robert McCauley & Patrick McGuire, 2012. "Interpreting TARGET2 balances," BIS Working Papers 393, Bank for International Settlements.
    10. Minenna, Marcello, 2022. "Target 2 determinants: The role of Balance of Payments imbalances in the long run," Journal of Banking & Finance, Elsevier, vol. 140(C).
    11. William Arrata & Thibaut Gentil, 2025. "The allocation of monetary policy income within the Eurosystem [Le partage des revenus de la politique monétaire au sein de l’Eurosystème]," Bulletin de la Banque de France, Banque de France, issue 260.
    12. Chmielewski Tomasz & Sławiński Andrzej, 2019. "Lessons from TARGET2 imbalances: The case for the ECB being a lender of last resort," Economics and Business Review, Sciendo, vol. 5(2), pages 48-63, June.
    13. Régis Breton & Thibaut Gentil & Sébastien Ray, 2026. "The climate indicator: a tool to support companies in their climate transition [Circulation de la liquidité en zone euro : comment interpréter les positions TARGET des banques centrales ?]," Bulletin de la Banque de France, Banque de France, issue 262.
    14. J. Boeckx, 2012. "What is the role played by the Eurosystem during the financial crisis ?," Economic Review, National Bank of Belgium, issue ii, pages 7-28, September.

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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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