On Friday the European Central Bank launched a consultation on extending the hours of T2, its main real time gross settlement (RTGS) system. DLT payments and the digital euro are one of the considerations, although not the primary driver of the plans.
T2 already operates 22.5 hours a day, but consumer and interbank payments are only possible during a narrower window. Additionally, the system closes for 48 hours over the weekend. The consultation is canvassing what changes are desirable, varying from smaller tweaks to 24/7/365. Currently the central bank wants to have a dialogue rather than proposing specific changes or any timeframe for implementation.
These timing constraints become particularly relevant when considering emerging payment technologies. Last year the Eurosystem ran DLT wholesale settlement trials using central bank money and now the ECB is working on an interim Trigger solution and a CBDC longer term. The Trigger solution initiates conventional T2 payments for the settlement of DLT transactions. Given the expectation that DLT systems are expected to operate 24/7, longer central bank money settlement times are desirable. Otherwise Trigger payments may not be possible during certain hours, or in the case of CBDC, institutions would have to keep extra buffers which is undesirable.
Instant payments are the key driver
However, the primary catalyst for extending T2’s hours stems from conventional payment innovations. While the instant payment system TIPS, which operates 24/7/365 has been operational for some time, the Instant Payment Regulation comes into force this year. It’s expected to increase the volume of instant payments, especially because the €100,000 limit will be removed. Currently banks manage unpredictable TIPS demand with buffers, but the ECB is not convinced this will suffice with large instant payment volumes. Likewise, the digital euro retail CBDC is intended to operate around the clock with similar needs for access to central bank money.
Beyond domestic demand, international usage patterns also support extended hours. Promoting the international usage of the digital euro is one of the motivations, giving foreign institutions more leeway. Overseas firms already access the system in the middle of the night, with non Euro area countries making up the majority of payments between 3am and 5am.
The ECB expects to gather feedback on whether modest extensions or full 24/7 operations would best serve Europe’s evolving payment landscape, with any implementation timeline dependent on the consultation results. Feedback is requested by the end of September.
