CHAPS has historically had a small number of Direct Participants and a much larger number of indirect participants which access the system through a sponsor bank. This arrangement (known as ‘tiering’) introduces credit, liquidity and operational risks, which were brought into sharp focus by developments including the financial crisis. With heavy tiering, if a large direct participant was to encounter financial or operational issues, this would also impact the ability of the indirect participants that rely on it to make payments – causing issues to spread further across the financial system. These risks are best addressed by increasing direct access to the CHAPS system to reduce concentration in a small number of large sponsor banks. As a result, the Bank has worked for several years, initially with CHAPS Co and more recently as the operator of CHAPS, to implement a strategy to mitigate the risks arising from tiering in CHAPS. This includes engagement with large indirect participants, as well as new CHAPS rules that presume organisations responsible for more than 2% of CHAPS value will join directly. The last decade has seen a significant reduction in financial risks associated with tiering, with the addition of a further 19 Direct Participants including two further FMIs. Despite this, CHAPS remains highly tiered relative to other high value payment systems such as Fedwire Funds and TARGET2. The renewed RTGS service will help to change this. It will be able to support several hundred direct participants and make it easier, quicker and cheaper to join CHAPS.
This is an opportunity for us to discuss the success of Bulgaria’s monetary policy regime in the broader context of the lessons from the current crisis. The speakers and discussants from the BNB today and tomorrow will share the knowledge we have acquired, based on our rich institutional experience. The experience of the Bulgarian central bank is unique. We are one of very few central banks in the world which have both practiced “conventional” monetary policy (involving setting of policy rates and conducting open market operations) and then operated a currency board after that. We have had a track record, during the last two decades, of monetary policy under two remarkably contrasting regimes. Thus our legacy is very different from that of the other similar monetary policy regimes in Europe (such as Estonia, Lithuania, or Bosnia and Herzegovina), where the currency boards were adopted by newly-established central banks in newly-independent states as a means of bringing confidence in a new national currency, promoting political emancipation and national identity. That was not our case, however. The currency board arrangements were introduced in Bulgaria exactly 15 years ago with the very same motivation that stays behind the current reform agenda in the euro area. We did it in order to achieve a much more efficient macroeconomic management and to bring in credibility in the whole policymaking process. Furthermore, the case of Bulgaria demonstrates the importance of maintaining wide consensus among politicians and the society at large, on the key principles of economic policy.