Real-time gross settlement (RTGS) is an interbank payment mechanism in which funds transfers between institutions are settled individually and irrevocably, transaction by transaction, in central-bank money as each instruction is processed. Because settlement is gross rather than netted and occurs continuously throughout the day, RTGS eliminates settlement risk between counterparties at the moment of transfer. National central banks typically operate RTGS systems for large-value, time-critical payments.
Overview
- RTGS contrasts with deferred net settlement, where obligations accumulate and net at intervals.
- Gross, continuous settlement means no build-up of bilateral exposure between banks.
- Participants must manage intraday Liquidity to fund payments as they fall due.
- RTGS underpins the plumbing of national and cross-border high-value payments.
Mechanisms
- Each payment instruction is checked for funds and settled one at a time.
- Settlement occurs across accounts banks hold at the central bank.
- Intraday credit and liquidity-saving mechanisms smooth peak demand.
- Queuing and gridlock resolution handle interdependent payments.
Applications
- Large-value wholesale payments between financial institutions.
- Settlement legs of securities and foreign-exchange transactions.
- Final settlement of retail and net settlement systems.