Real-Time Gross Settlement (RTGS)

What is the definition and function of an RTGS system?

Real-Time Gross Settlement (RTGS) systems are large-value payment systems managed by central banks, designed to settle transactions individually and continuously throughout the day. 'Real-Time' means the transaction is settled immediately upon processing, and 'Gross' means payments are processed one-by-one, without netting. This structure ensures finality and eliminates settlement risk for high-value transactions. Examples include Fedwire in the US, CHAPS in the UK, and TARGET2/T2 in the Eurozone. These systems are crucial for interbank settlement and managing systemic risk in the financial sector.

What are the daily volumes handled by major RTGS systems?

Major RTGS systems handle trillions of dollars daily, underpinning the global economy. Fedwire in the US processes an average of $4.51 trillion daily across approximately 836,000 transactions, operating 22 hours a day. TARGET2/T2 in the Eurozone settles about €2.2 trillion daily, a value equivalent to the entire eurozone GDP every six days. CHAPS in the UK handles approximately £350 billion daily. While RTGS transactions represent a tiny fraction (often less than 0.1%) of total payment volume, they account for the vast majority (88-91%) of the total value transferred, emphasizing their role in systemic liquidity.

How does RTGS differ from clearing and netting systems?

RTGS differs fundamentally from clearing and netting systems. Clearing involves matching trade details and calculating net obligations before settlement, often using multilateral netting to reduce the number of required transfers. RTGS, conversely, settles transactions on a gross basis—one by one—providing immediate, final settlement. While netting systems like the DTCC (which processes $2.5 quadrillion annually and nets 94% of obligations) are efficient for securities, RTGS is used for critical, high-value payments where finality and zero settlement risk are paramount, as the funds are transferred using central bank money.

What is the relationship between RTGS and modern instant payment systems?

Modern instant payment systems often leverage RTGS infrastructure or integrate closely with it to achieve real-time settlement. For example, the Eurozone's TIPS (TARGET Instant Payment Settlement) integrates with TARGET2/T2 to offer 24/7 instant payments that settle in under 10 seconds. While RTGS traditionally operated during business hours, the trend is toward extended availability, with Fedwire planning expansion to 22x7x365 operation by 2028-2029. This integration allows retail and corporate instant payments to benefit from the security and finality of central bank money settlement.