The circulation of liquidity in the euro area: interpreting central banks’ TARGET positions
Bulletin No. 262, article 4. Between 2016 and 2022, bank reserves tripled on the liability side of Eurosystem balance sheets before gradually falling back, while, remarkably, the distribution of this liquidity between countries remained relatively stable. However, significant fluctuations affected the national balances resulting from cross-border settlements (“TARGET balances”, named after the original name of the main wholesale settlement system in the euro area).
This article presents a model that quantifies the contribution of each type of monetary policy operation to the evolution of TARGET balances since the introduction of the euro. The first major movements are attributable to banking sector refinancing operations, particularly during the sovereign debt crisis of 2011-12; then between 2015 and 2025, the Eurosystem’s asset purchase programmes – and their repayment at maturity – account for most of the changes observed.
TARGET balances are positions recorded on the balance sheets of Eurosystem central banks linked to the organization of payments across borders. Technical and initially little known outside central banking circles, they quickly became part of public debate during the euro area sovereign debt crisis in 2011-12. At the time, their rapid increase in size (see Chart 1) was analysed from the perspective of the crisis, as a consequence of the Eurosystem’s responses to the stress placed on the banking system or, for certain commentators, as a sign of dysfunction in the euro area.
Since then, a number of studies have helped to explain how TARGET accounts work and to clarify how they should be interpreted. In particular, several recent studies have demonstrated that the existence of persistent balances can be explained by the implementation of unconventional monetary policy measures: after declining with the end of the sovereign debt crisis, TARGET balances rose again in absolute terms, in parallel to the purchase programmes implemented by the Eurosystem between the end of 2014 and 2022 (see Chart 1).
This article seeks to quantify the contribution of monetary policy operations to the evolution of TARGET balances.
1 The European monetary union allows liquidity to circulate freely
The central bank money issued by the Eurosystem in the form of banknotes and reserves (commercial bank deposits with the central bank) circulates freely within the euro area. This circulation, which is what results in central banks’ TARGET balances, plays an essential role in the functioning of the monetary union, particularly with regard to the organisation of payments and the implementation and transmission of monetary policy. It also promotes financial integration and the mobilisation of savings towards investment throughout the monetary union.
The circulation of liquidity creates the TARGET positions appearing on central banks’ balance sheets
The circulation of reserves can result from payment flows between commercial banks, as a counterpart to proprietary transactions or transactions on behalf of their customers. When a payment is made between two commercial banks in the same country, the reserves remain on the balance sheet of that country’s national central bank (NCB), which simply transfers them from one account to another. However, when the two commercial banks have their accounts with two different NCBs, the reserves are transferred between countries from one NCB to the other: the receiving NCB (B in Diagram 1) records a new TARGET claim in respect of the reserves received (recorded on the liability side); the other (A in Diagram 1) records a new TARGET liability to replace the transferred reserves. …
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Updated on the 19th of March 2026