3 EMI "Targets" SWIFT for Euro Messaging

Lost in this year's blather over whether and how the Euro will become reality by 1999 was the fact that the European Monetary Institute (EMI), destined to be Europe's central bank, chose Society for Worldwide Interbank Financial Telecommunication (SWIFT) to be the vehicle for TARGET, its real-time gross settlement (RTGS) messaging system, thus providing the roads over which Euro-denominated currency flows would travel. Since nations are united by various sorts of roads, selecting SWIFT-a logical choice for the job, since it was already cozily ensconced in the back offices of the major European banks-meant that the nation of Europe, composed of provinces with names like Italy or Belgium, was that much closer to reality.

Looked at this way, the bickering among the Europeans about whether to support the Euro, and who would be admitted to its splendors, was taking place on a ship that had already left the dock.

The whole point in choosing SWIFT was so that, as a practical matter, Europe was ready to settle its cross-border currency flows on a real-time gross settlement basis, and that this was yet one more nail in the coffin of European nationalism, whether national politicians were ready to live with it or not. And considering all the wonderful gifts bestowed on civilization by European nationalism-two world wars come to mind-said nails were hardly bad news for anyone but those national leaders, suddenly destined to become local politicians.

And, in fact, EMI's choice of SWIFT to handle TARGET messaging flows also helped lay the groundwork for the Continuous Linked Settlements (CLS) Bank, and thus the true globalization of finance. "There are links between RTGS and CLS, and TARGET will help, because it will unify the gross settlements in the European countries," says Lazaro Campos, SWIFT's director for market infrastructure. "Different countries were at different speeds in terms of establishing RTGS systems, (but) now TARGET has accelerated a lot of those plans, and will provide a single point for settlement of Euro-denominated F/X transactions, which will increase the efficiency (of those flows)."

TARGET is an interconnected RTGS system that unifies the 15 central banks of the EMI, which will be serving as the European central bank. SWIFT provides the so-called FIN "store-and-forward" messaging ability, which is its main product.

SWIFT, by linking together the bank's disparate accounting systems, ensures the recording of these local entries across its lines, between these central banks. "This was a compromise. You could say (that) EMI is going to be the European central bank; why didn't it set up the European RTGS system?' That would have been an option, but it would have added yet another system to the number of RTGS systems already in operation," says SWIFT's Campos. "So the compromise here was that each central bank in Europe maintains its own system, but not in isolation, but as part of a larger solution, which would encompass the RTGS systems of the other European countries."

All in all, says Campos, TARGET was a political solution to a political problem, "as political as European unity is." Nonetheless, he says, SWIFT will be ready to do its part on January 1, 1999-the target date for the Euro's official launch. A.Reinbach