What is Real-Time Gross Settlement ?

381 reads · Last updated: December 5, 2024

The term "real-time gross settlement (RTGS)" refers to a funds transfer system that allows for the instantaneous transfer of money and/or securities. RTGS is the continuous process of settling payments on an individual order basis without netting debits with credits across the books of a central bank. Once completed, real-time gross settlement payments are final and irrevocable. In most countries, the systems are managed and run by their central banks.

Definition

Real-Time Gross Settlement (RTGS) is a funds transfer system that allows for the immediate transfer of funds and/or securities. RTGS systems settle payments on an individual order basis without involving debit and credit clearing on the central bank's books. Once completed, RTGS payments are final and irrevocable.

Origin

RTGS systems were first introduced in the 1980s to enhance the efficiency and security of payment systems. As global financial markets became more complex and transaction volumes increased, central banks worldwide adopted RTGS systems to ensure the safety and timeliness of large-value payments.

Categories and Features

RTGS systems are mainly categorized into domestic RTGS and cross-border RTGS. Domestic RTGS is used for large-value interbank payments within a country, while cross-border RTGS is used for international fund transfers. Key features of RTGS include real-time processing, irrevocability, and high security, making it suitable for large transactions requiring quick settlement.

Case Studies

A typical example is the UK's CHAPS system (Clearing House Automated Payment System), an RTGS system handling large-value payments within the UK. Another example is India's RTGS system, operated by the Reserve Bank of India, supporting large-value interbank fund transfers within India. These systems ensure the quick and secure settlement of large payments.

Common Issues

Investors using RTGS may encounter issues such as delays due to system failures and high transaction fees. Additionally, RTGS systems are generally not suitable for small-value payments, as they are designed to handle large and urgent fund transfers.

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