No. 257 - Which TARGET for Monetary Policy in Stage Three? Issues in the Shaping of the European Payment System

We explore the inter-relationships between payment-system arrangements and the conduct of the single monetary policy in Stage Three of EMU against the background of TARGET - the project drafted by the European Monetary Institute with the aim of creating an EU-wide payment system through the interlinking of national Real Time Gross Settlement (RTGS) systems. In addition to the issues raised by the coexistence of gross and net settlement arrangements, the spread of RTGS systems is likely to involve an increase in the demand for intraday liquidity. We analyse the alternative options available to meet this demand, focusing on their monetary policy implications and drawing a number of policy prescriptions.