Real-time gross settlement: how central banks settle payments one by one

Real time means that a payment is not held for a waiting period, though processing can still take some time, and gross means that each transaction settles on its own, without bundling or netting, as Wikipedia puts it. Once processed, the payment is final and irrevocable. No cash moves: the central bank debits one account and credits the other. Depending on the system, settlement takes anywhere from an instant to 30 minutes, according to Modern Treasury.

Central banks usually run their RTGS system themselves, because large-value payments, money market deals and monetary policy operations depend on it. The legal moment of finality is set by the Settlement Finality Directive.

Fedwire in the United States was the first system with RTGS features, in 1970. The British CHAPS and the French SAGITTAIRE followed in 1984. Three central banks ran an RTGS system in 1985, and 90 did by the end of 2005. In Europe today, T2 settles the euro, CHAPS the pound and SIC the Swiss franc.

T2 replaced TARGET2 at the consolidation of the TARGET services, which Finance Loop covers in TARGET2 and TIPS. In the German T2 component, banks submitted almost 208,000 payments worth about EUR 900 billion per business day in 2023, the Bundesbank reports (in German).

A net system collects payments and settles only the difference between banks, once or a few times a day. That needs less liquidity but leaves the banks exposed to each other until settlement. RTGS removes that exposure and asks for more liquidity in return, which banks draw from intraday credit at the central bank against collateral. Managing it is the subject of intraday liquidity.

Some systems sit in between. EURO1 of EBA Clearing nets the payments of its 33 participants and still makes each payment final when it is processed.

Tokenized securities trade on DLT platforms, and their cash leg can now settle in the RTGS system. The Eurosystem service Pontes links market DLT platforms with the TARGET services. Participants settle either with cash tokens on a Eurosystem DLT platform or in T2, and the cash leg is final once the matching transaction completes in T2, according to the ECB. Pontes launched on September 21, 2026.

An RTGS system settles large-value and urgent payments between banks on business days; T2 closes on TARGET closing days. Instant payments are retail transfers that settle around the clock. In the euro area, TIPS settles them gross in central bank money too, but it is a separate service built for small amounts in high numbers.

Banks with an account at the central bank. In T2, credit institutions established in the European Economic Area get direct access through their national central bank, in Germany the Bundesbank. Other firms reach it through a bank that holds the account for them.

A wire transfer is what the customer orders. Between banks in the euro area, an urgent or large transfer usually settles in T2, while an ordinary SEPA transfer is cleared in a net system first. The customer sees the difference in speed and in the fee.