As is the case with every central bank, the ECB has a direct interest in the prudent design and management of any payment and settlement system processing its own currency, the euro. Indeed, the smooth functioning of payment and settlement systems is a crucial aspect of a sound currency and essential to the conduct of monetary policy. These systems also have a significant bearing on the functioning of financial markets. Changes in payment systems may cause unpredictable shifts in the demand for, or supply of, base money. Moreover, safe and efficient payment systems are critical to the maintenance of banking and financial stability.
Against this background, and in accordance with guidelines approved by the central banks of the Group of Ten countries, the Governing Council of the ECB wishes to underline that, as in any other monetary system, central bank money in euro can only be provided by the central banks that belong to the euro area. Also, the Governing Council of the ECB invites all central banks outside the euro area to contact the ECB whenever they became aware of a planned settlement arrangement in euro, be it domestic, cross-border or multi-currency in nature.
In the context of TARGET, the ECB decided in July 1998 to accept the fact that non-euro area EU national central banks will be able to offer limited intraday liquidity in euro to their participants. It is an innovative arrangement, intended to smooth the future transition of the relevant Member States to Economic and Monetary Union. This arrangement, which is subject to the binding conditions set out in an agreement with the central banks concerned, should be seen as a very specific exception to the rule that no central bank shall grant credit in a currency other than its own.
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