Real-time gross settlement

Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a 'real time' and on a 'gross' basis. Settlement in 'real time' means a payment transaction is not subjected to any waiting period, with transactions being settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one-to-one basis without bundling or netting with any other transaction. 'Settlement' means that once processed, payments are final and irrevocable. Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a 'real time' and on a 'gross' basis. Settlement in 'real time' means a payment transaction is not subjected to any waiting period, with transactions being settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one-to-one basis without bundling or netting with any other transaction. 'Settlement' means that once processed, payments are final and irrevocable. RTGS systems are typically used for high-value transactions that require and receive immediate clearing. In some countries the RTGS systems may be the only way to get same day cleared funds and so may be used when payments need to be settled urgently. However, most regular payments would not use a RTGS system, but instead would use a national payment system or automated clearing house that allows participants to batch and net payments. RTGS payments typically incur higher transaction costs and usually operated by a country's central bank. As of 1985, three central banks had implemented RTGS systems, while by the end of 2005, RTGS systems had been implemented by 90 central banks. The first systems that had the attributes of a RTGS system was the US Fedwire system which was launched in 1970. This was based on a previous method of transferring funds electronically between US federal reserve banks via telegraph. The United Kingdom and France both independently developed RTGS type systems in 1984. The UK system was developed by the Bankers Clearing House in February 1984 and was called CHAPS. The French system was called SAGITTAIRE. A number of other developed countries launched systems over the next few years. These systems were diverse in operation and technology, being country specific as they were usually based upon previous processes and procedures used in each country. In the 1990s international finance organizations emphasised the importance of large-value funds transfer systems which banks use to settle interbank transfers for their own account as well as for their customers as a key part of a country's financial infrastructure. By 1997 a number of countries, inside as well as outside the Group of Ten, had introduced real-time gross settlement systems for large-value funds transfers. Nearly all G-10 countries had plans to have RTGS systems in operation in the course of 1997 and many other countries were also considering introducing such systems. RTGS systems are usually operated by a country's central bank as it is seen as a critical infrastructure for a country's economy. Economists believe that an efficient national payment system reduces the cost of exchanging goods and services, and is indispensable to the functioning of the interbank, money, and capital markets. A weak payment system may severely drag on the stability and developmental capacity of a national economy; its failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money.