Payment Systems: RTGS, BOJ-NET and Correspondent Banking

Derivatives payments in yen and in foreign currencies settle through different systems and accounts. They differ in when a payment becomes final, in what you can use when funds run short, and in which accounts a foreign-currency payment passes through.

Gross settlement and net settlement

Funds settlement works in one of two ways: gross settlement, which settles each payment individually, or net settlement, which offsets payments and receipts before settling.

A payment system is a set of means, procedures, and rules for moving funds among participants, and it includes the entity that operates it. Many large-value payment systems, which handle large and high-priority payments, are run by central banks and use RTGS (real-time gross settlement) or an equivalent mechanism¹. RTGS settles payment instructions one by one, in real time². Designated-time net settlement (DNS), by contrast, collects instructions, calculates the difference between payments and receipts, and settles only that difference at a set time³.

RTGS reduces settlement risk, but participants need funds to cover every payment, which raises the funds needed during the day⁴.

Within one country, the method can also depend on the amount. Take the Zengin System, the nationwide interbank transfer system. For payments of 100 million yen or more, each instruction is passed to the current account system of BOJ-NET (the Bank of Japan Financial Network System) and settled by RTGS on current accounts at the Bank of Japan. For small-value transactions below 100 million yen, Zengin-Net totals the instructions. It settles the difference between Zengin-Net and each financial institution once a day by designated-time net settlement on Bank of Japan current accounts (as of September 2024)³.

Settlement finality in RTGS

Settlement finality is the point at which settlement becomes unconditional and irrevocable⁵. The international standard asks the operator to define clearly, in its rules and procedures, when settlement becomes final⁵.

In the Bank of Japan's current account system, funds settlement is complete when the Bank confirms the settlement and records it in the current account ledger. The Bank's rules on current accounts set this point, and settlement finality is secured under applicable laws, including insolvency law. Its legal certainty has been checked through measures such as legal review by outside legal experts⁶.

Whether an instruction can be canceled is also set by agreement with the counterparty. A transfer request on an ordinary current account (the ordinary account) is processed without delay once the Bank accepts it and is recorded immediately, so it cannot be canceled. Among transfer requests processed once a condition is met, some do not allow cancellation and some allow it until the condition is met⁷.

Intraday liquidity and queues

Because RTGS needs the full amount of funds for each payment, there are ways to cover a shortfall during the day. Bank of Japan current accounts come in types with different uses. On the ordinary account, you borrow through intraday overdrafts. On the simultaneous settlement account, which has a queuing mechanism, instructions wait for incoming payments from counterparties.

The Bank of Japan provides intraday liquidity to its counterparties as a current account overdraft that must be repaid by the end of the business day. This is the intraday overdraft, and it is made on current accounts other than the simultaneous settlement account (the ordinary account). A counterparty can borrow, interest-free, up to the appraised value of the collateral it has pledged. If an overdraft balance remains at the close of business, penalty interest is charged at the basic loan rate plus 6% per year⁸.

The other way is BOJ-NET's liquidity-saving features, which are provided on the simultaneous settlement account of the current account. When the system accepts a payment instruction and the funds to debit are insufficient, it holds the instruction in a queue (the queuing function). If there is a combination of instructions that would not cause a shortfall when settled together, it settles them at once (the simultaneous settlement function for multiple instructions).

There are two ways to look for a combination. One searches between two parties each time a new instruction is sent or a balance increases. The other searches across the queues of all financial institutions eight times a day (at 10:30 a.m. and roughly every hour after that). Even when instructions are settled together, each is processed individually on a gross basis, and no netting takes place⁹.

Consider a hypothetical example in which Bank C and Bank D each hold 1 billion yen in their Bank of Japan current accounts and settle on the simultaneous settlement account. Bank C instructs a payment of 3 billion yen to Bank D, and Bank D instructs a payment of 2 billion yen to Bank C, at the same time, as payments for separate transactions.

When the two instructions settle together, Bank C's balance becomes 10 − 30 + 20 = 0 (in units of 100 million yen), and Bank D's becomes 10 − 20 + 30 = 20, or 2 billion yen, so neither balance goes negative. While the other bank's instruction has not been sent, Bank C's 3 billion yen payment stays in the queue.

BOJ-NET current account system and foreign exchange yen clearing

BOJ-NET is a settlement network operated by the Bank of Japan. It consists of the current account system, which handles funds, and the JGB system, which handles Japanese government bonds. The current account system settles funds transactions between financial institutions, the funds side of securities trades such as those in government bonds, and the final funds settlement of private payment systems, all by transfers between Bank of Japan current accounts. In 2023, funds settlement averaged about 235 trillion yen and about 83,000 transactions per business day¹⁰.

The Bank of Japan selects the counterparties that hold accounts in the current account system from among banks, shinkin banks, funds clearing institutions, financial instruments business operators, securities finance companies, financial instruments clearing organizations, and money market brokers¹¹. The Japan Securities Clearing Corporation and CLS Bank International are also counterparties that hold current accounts with the Bank of Japan¹². The yen funds for CLS transactions are settled on the ordinary account, and market transactions between counterparties are in principle settled on the simultaneous settlement account¹³. Settlement by DvP, which delivers government bonds and funds at the same time, is covered on the Securities Settlement and CSDs: DvP, JASDEC and T+1 page.

BOJ-NET input times are as follows, according to the Bank of Japan's decision as of October 2026. The core time is the period in which all participants using BOJ-NET have their operations in place¹⁴.

The Foreign Exchange Yen Clearing System settles the yen funds that arise from yen-denominated remittances between Japan and other countries and from trades in the foreign exchange market. The Japanese Bankers Association operates it, and the Bank of Japan is entrusted with the work of transmitting payment instructions and similar tasks, using the BOJ-NET current account system. It centers on large-value settlement, which it processes by RTGS¹⁵. Its settlement method moved fully to real-time gross settlement in October 2008¹⁶. Financial institutions convert messages sent over SWIFT into the system's own message format before sending and receiving them. On November 25, 2025, the Bank of Japan revised the ISO 20022 version used for messages of this system and of overseas deposit transactions to version 8 (the 2019 edition)¹⁷¹⁸.

RTGS in the United States, the United Kingdom, and the euro area

Other major currencies also have RTGS systems that use central bank accounts.

The Fedwire Funds Service is an RTGS in which depository institutions and others holding accounts at a Federal Reserve Bank can participate. Processed payments are final immediately and cannot be revoked. It is used for large-value, time-critical payments¹⁹. The operating hours of each system are those the operators published in October 2026. The Fedwire business day opens at 9:00 p.m. Eastern Time on the previous calendar day and closes at 7:00 p.m. The cutoff for customer transfers is 6:45 p.m. Eastern Time²⁰.

CHAPS settles large-value same-day payments in pounds sterling. Payments between direct participants are settled individually on a gross basis on the same day and cannot be revoked. Institutions that are not direct participants pay through a direct participant. Interbank payments close at 6:00 p.m. The cutoff for customer payments is 5:40 p.m. London time²¹.

T2 is the Eurosystem's RTGS, which replaced TARGET2 in March 2023. It settles payment orders one by one and continuously in central bank money, with no upper or lower limit on amounts. It is open Monday to Friday and closed on weekends and some public holidays. It has also handled settlement in Danish krone since April 2025²².

The Bank of England and the European Central Bank are considering longer operating hours. The Bank of England has designed the renewed RTGS so that it can extend to close to 24 hours a day, 7 days a week, and is working with the industry on whether to extend²³. In May 2026, the European Central Bank published a roadmap toward extending T2's operating hours²².

Correspondent banks and nostro accounts

A foreign-currency payment moves through a network of banks across borders, passing on the payment instruction and settling the funds in turn²⁴. A bank that carries out settlement for a foreign financial institution is called, from the side of the institution that delegates the work, a correspondent bank²⁵. The delegating institution's own account at the correspondent bank is its nostro account. It manages the balances and reconciliation of foreign-currency payments and receipts on this account²⁶.

Consider a hypothetical example in which Bank C pays 1 million US dollars to a payee at a customer's request. Bank D is Bank C's correspondent bank for US dollars, and Bank C holds a US dollar nostro account at Bank D with a balance of 3 million US dollars. The payee has an account at Bank D.

Figure description

When Bank C sends the payment instruction, Bank D debits 1 million US dollars from Bank C's nostro account and credits the payee's account. Because the payment is completed by transfers on Bank D's books, this example uses no US dollar settlement system.

This sequence applies when the sending bank and the receiving bank have a correspondent agreement. After the payment, the nostro account balance is 2 million US dollars. If the balance is less than the payment, the account risks an overdraft, where it goes negative. If it is enough, the payment can be made without raising additional funds²⁷.

When the sending and receiving banks hold no direct account with each other, a third bank (an intermediary bank) that has correspondent agreements with both steps in. When the intermediary bank is in the same country as the receiving bank, a domestic settlement system is sometimes used for part of the interbank fund transfers. In Japan, the Foreign Exchange Yen Clearing System is one example²⁸.

The workflow of confirming nostro account balances and matching incoming payments is covered on the Settlement page.

Notes

1. BIS Committee on Payment and Settlement Systems and IOSCO Technical Committee, "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation, in Japanese) (external site) (April 2012), paragraph 1.10, page 10. ↩

2. "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation) (external site), paragraph 3.8.6, pages 92–93. ↩

3. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), page 12, section 2 on the Zengin System (the nationwide interbank transfer system). ↩ ↩²

4. "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation) (external site), paragraph 3.8.7, page 93. ↩

5. "金融市場インフラのための原則" (Principles for financial market infrastructures, provisional Japanese translation) (external site), Principle 8 and paragraph 3.8.1, pages 90–91. ↩ ↩²

6. Bank of Japan, "日本銀行が運営する資金決済システムに関する情報開示" (Disclosure on the funds settlement system operated by the Bank of Japan, in Japanese) (external site) (July 31, 2025), section 1-2, page 3, and Principle 8, Key Consideration 1, page 14. ↩

7. The same document (external site), Principle 8, Key Consideration 3, page 42. ↩

8. Bank of Japan, "日中当座貸越基本要領" (Basic Terms for Intraday Overdrafts, in Japanese) (external site), items 1 (eligible accounts), 3 (collateral), 4 (overdraft limit), 5 (repayment deadline), 6 (interest), and 7 (penalty interest). Revised March 31, 2019. ↩

9. Bank of Japan, "日本銀行が運営する資金決済システムに関する情報開示" (Disclosure on the funds settlement system operated by the Bank of Japan, in Japanese) (external site) (July 31, 2025), section 1-2, note 3, page 3, and the explanation under 3-4, page 13. ↩

10. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), pages 9–10, section 1 on BOJ-NET (current account system and JGB system). ↩

11. Bank of Japan, "日本銀行が運営する資金決済システムに関する情報開示" (Disclosure on the funds settlement system operated by the Bank of Japan, in Japanese) (external site) (July 31, 2025), section 1-3, page 3. ↩

12. Bank of Japan, "日銀当座預金取引・当座貸越取引" (Current Account Transactions and Overdraft Transactions, in Japanese) (external site), the table under the related publications on current account counterparties (Japan Securities Clearing Corporation, January 2003; CLS Bank International, June 2002). ↩

13. Bank of Japan, "日本銀行が運営する資金決済システムに関する情報開示" (Disclosure on the funds settlement system operated by the Bank of Japan, in Japanese) (external site) (July 31, 2025), section 1-2, pages 3–4. ↩

14. Bank of Japan, "日銀ネットにおけるオンライン入力開始時刻等に関する件" (Online Input Start Times and Related Matters in BOJ-NET, in Japanese) (external site) (decided July 31, 2015; revised January 19, 2016), items 1 and 2. On days the Governor considers necessary, the start of input can be moved earlier and the deadline later (item 3). ↩

15. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), page 13, section 3 on the Foreign Exchange Yen Clearing System. ↩

16. Bank of Japan, "日銀ネットにおいて、民間資金決済システムでの金融機関間の受払はどのように行われていますか？" (How are payments and receipts between financial institutions made in private funds settlement systems on BOJ-NET?, in Japanese) (external site), the section on the Foreign Exchange Yen Clearing System. ↩

17. Bank of Japan, "日銀ネットで利用するISO20022電文のバージョン改訂の実施について" (Implementation of the Version Revision of ISO 20022 Messages Used in BOJ-NET, in Japanese) (external site) (November 25, 2025). ↩

18. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), page 14, the paragraph below Figure 6. ↩

19. Board of Governors of the Federal Reserve System, "Fedwire Funds Service" (external site), the description: that it is an RTGS, who can participate, and that it is used for large-value, time-critical payments. ↩

20. Federal Reserve Financial Services, "Fedwire Funds Service and National Settlement Service Operating Hours" (external site), "Fedwire Funds Service Schedule" and "Processing Times". ↩

21. Bank of England, "CHAPS" (external site), the opening section, "Who uses CHAPS?", and "How does CHAPS work?" (including the description of operating hours). ↩

22. European Central Bank, "What is T2?" (external site), "How does T2 work?", "T2 opening hours", "Multi-currency in T2", "Public consultation …", and "TARGET and TARGET2". ↩ ↩²

23. Bank of England, "The renewed RTGS service key benefits" (external site), "Improved user functionality". ↩

24. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), pages 41–42, section 2 on the mechanism of cross-border remittances, Figure 30 and note 30 (the nostro account from the sending bank's side). ↩

25. Bank of Japan, "金融機関の決済リスク管理について" (Settlement Risk Management at Financial Institutions, in Japanese) (external site) (February 2000), page 9 and Figure 1, "Position of participants in a settlement system". ↩

26. Global Foreign Exchange Committee, "グローバル外為行動規範" (FX Global Code, provisional Japanese translation by the Tokyo Foreign Exchange Market Practices Committee, in Japanese) (external site) (December 2024 edition), Principle 54, page 51. ↩

27. Global Foreign Exchange Committee, "グローバル外為行動規範" (FX Global Code, provisional Japanese translation by the Tokyo Foreign Exchange Market Practices Committee, in Japanese) (external site) (December 2024 edition), Principle 53, pages 50–51. ↩

28. Bank of Japan, "決済システムレポート 2024" (Payment and Settlement Systems Report 2024, in Japanese) (external site) (September 2024), pages 42–43, Figures 31 and 32. ↩

29. Global Foreign Exchange Committee, "グローバル外為行動規範" (FX Global Code, provisional Japanese translation by the Tokyo Foreign Exchange Market Practices Committee, in Japanese) (external site) (December 2024 edition), Principle 53, pages 50–51, and Principle 54, page 51. ↩