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Liquidity usage in TARGET2

Ioana Duca-Radu and Sara Testi

Economic Bulletin Articles, 2021, vol. 3

Abstract: This article examines liquidity usage in TARGET2 – the real-time gross-settlement (RTGS) system owned and operated by the Eurosystem – and related developments over time. More specifically, it analyses the velocity at which liquidity circulates in the system and the interplay between the liquidity sources that participants use to fund their payment obligations. Growth in levels of central bank reserves has affected TARGET2 participants’ behaviour, giving lower incentives to recycle incoming liquidity, which is reflected in decreased liquidity velocity and an increased use of the central bank reserves on the account balance to fund outgoing payments. Interest rates are also found to affect the behaviour of TARGET2 participants. Moreover, it is shown that liquidity usage varies significantly across participants and countries. A bank-level panel analysis quantifies the impact of specific TARGET2 participant features and monetary policy decisions on liquidity usage in TARGET2. JEL Classification: G10, G20, G21

Keywords: Intraday liquidity; Liquidity efficiency; Payment funding sources; Payment systems; TARGET2 (search for similar items in EconPapers)
Date: 2021-05
Note: 2655259
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