Payment system reform in New Zealand : the start of real time gross settlement
From March 1998, the inter-bank settlement of most high value wholesale payments in New Zealand will occur on a real time gross settlement (RTGS) basis. This means that the interbank transfer of funds associated with each such payment will be posted to the exchange settlement accounts of the paying and receiving banks at the Reserve Bank, transaction by transaction, irrevocably and ahead of value being credited/debited to the banks’ respective customers. Up until now, the inter-bank transfer of funds has not occurred until the end of each banking day. The introduction of RTGS will remove the inter-bank exposure that banks have carried when they give irrevocable value to their customers ahead of the time they receive inter-bank settlement of those payments. And where this exposure does not exist because the payments could be reversed should the paying bank fail to settle, RTGS provides a mechanism that enables the spectre of such reversals to be eliminated.