Monetary policy operations drive euro area TARGET balance fluctuations
A Banque de France article quantifies the impact of monetary policy operations on euro area TARGET balances since the euro's introduction. The study highlights the significant role of refinancing operations and asset purchase programmes in their evolution.
Monetary policy's imprint on TARGET
TARGET balances, which reflect cross-border settlements within the Eurosystem, became a subject of public debate during the 2011-12 sovereign debt crisis due to their rapid increase.
Initially little known outside central banking circles, their evolution has since been extensively studied.
This article demonstrates that persistent balances can be largely explained by unconventional monetary policy measures.
Following a decline after the sovereign debt crisis, TARGET balances rose again in absolute terms, paralleling the Eurosystem's asset purchase programmes (APP and PEPP) implemented between late 2014 and 2022.
The study quantifies the contribution of these operations to the observed fluctuations, providing a clearer interpretation of these central bank positions.
Euro area vs. US: Different liquidity mechanics
The circulation of central bank money within the euro area creates TARGET positions, reflecting reserve movements between national central banks.
These balances net out to zero across the Eurosystem, with the ECB as central counterparty, but individual NCBs can hold persistent credit or debit positions.
This contrasts with the US Federal Reserve's Interdistrict Settlement Accounts (ISAs), which undergo approximate annual rebalancing and are primarily managed by the New York Fed.
This operational difference limits the accumulation of persistent credit or debit positions in the US system, leading to distinct dynamics compared to the euro area.