TARGET2 and Central Bank Balance Sheets

Files in This Item:
File Description SizeFormat 
WP12_29.pdf713.35 kBAdobe PDFDownload
Title: TARGET2 and Central Bank Balance Sheets
Authors: Whelan, Karl
Permanent link: http://hdl.handle.net/10197/3919
Date: Nov-2012
Abstract: The Eurosystem’s TARGET2 payments system has featured heavily in academic and popular discussions in recent years. Much of this commentary had described the system as being responsible for a “secret bailout” of Europe’s periphery which has led to huge credit risks for the Bundesbank should the euro break up. This paper discusses the TARGET2 system, focusing in particular on how it impacts the balance sheets of the central banks that participate in the system. It concludes that the TARGET2 is largely innocent of the charges that have been levelled against it. Arguments that TARGET2 facilitated a bailout of the periphery or that the system is playing a key role in facilitating peripheral current account deficits turn out to be wide of the mark. Risks to Germany due to the loss of TARGET2‐related revenues for the Bundesbank after a euro break‐up turn out to relatively small because these revenues are limited and because there are potentially large gains from new seigniorage revenues in this scenario. Many criticisms involving TARGET2 turn out, on closer examination, to be criticisms of the ECB’s core principle of treating credit institutions across the euro area in an equal manner. Proposals that the ECB adopt procedures that discriminate between banks in different countries (or that restrict the operation of payments systems in certain countries) are likely to be incompatible with the continuation of the euro as a common currency.
Funding Details: Not applicable
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP12/29
Keywords: TARGET2ECBEuro crisis
Subject LCSH: TARGET Project
European Central Bank
Interbank market--European Union countries
Other versions: http://www.ucd.ie/t4cms/WP12_29.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

Show full item record

Google ScholarTM

Check


This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.