What is 'specie'?

To demand payment in specie, is to demand that which is specified.

So, just actually getting your dollar from the bank, rather than keeping a promise of a dollar from the bank. Doesn't seem much different today, right? But it might tomorrow.

In the days of the gold standards, a dollar was defined as a coin with certain specifications — including a specific quantity of fine gold. The problem inevitably arose, under these various forms of gold standard, where enough people demanded what had been specified, the banks were unable to deliver it to all of them as promised. This was inevitable, because money is not gold… money is credit.

People take out credit for all manner of things, with no regard or connection to the availability of gold to physically make all that money into coins for all the Negative Nancies out there who suddenly decide… Hey, wait a minute! I don't trust the bank's promises any more!!

Fortunately, today the dollar (or any other currency) is not specified as something physical that can be demanded — except for demanding a physical piece of paper with 'dollar' written on it from the bank, which you can hand to someone for their goods, instead of paying with your bank debit card or cheque, and they can pass on to someone else in the same way if they wish, or just pay it back into a bank again. Ultimately, it ends up either under a mattress or back inside the banking system… since it's useless for much else besides perhaps lighting a cigar, or wrapping a piece of used chewing gum before you can get to a waste receptacle.

Almost nobody believes money is gold today… meaning that almost everyone is right, which makes for a pleasant change!


^{You may not like it, but not everyone agrees. Deal with it!}

What is TARGET2?

Trans-European Automated Real-time Gross Settlement Express Transfer System (version 2)

It's A Hierarchical Thing

TARGET2 is a system of bank clearing across borders within the Eurozone, where National Central Banks (NCBs) intermediate.

It would not be all that much different if the banks of Europe all directly engaged each other… except… these commercial banks don't both have an account in the same NCB's book, so recording a transaction in there is impossible. TARGET2 is accounting at the next level up in the hierarchy of the monetary system.

In this respect, TARGET2 at the ECB serves a similar purpose to the clearing system of the Federal Reserve Banks in the US, where each Eurozone nation (and its local NCB) is to some extent analogous to the regional Banks of the Federal Reserve system. A bank domiciled in the San Francisco Fed's region has an account at the San Francisco Fed. A bank domiciled in the New York Fed's region has an account at the New York Fed. Any transfers between these two banks are executed by clearing at the Federal level (in aggregate, along with all other transactions), not within the books of just one of the local Fed member banks.

Similarly, any transfers between a bank domiciled in the Eurozone and one domiciled in the US will clear at the next level up in the hierarchy - via the accounts of the two Central Banks (ECB and Fed) at the Bank for International Settlements (BIS). This is the top level of the global monetary system hierarchy. Unless we start trading with aliens, that is probably all we will ever need right?

So we have:

• BIS
• Central Banks (ECB, Fed, BoE, BoJ, PBoC, etc, etc)
• In the Federated systems, US Fed & ECB, regional/national CBs present an additional layer
• Then you have the commercial banks
• Then you finally have the accounts of individual businesses and individuals

Your monetary transaction will show up at whatever is the lowest level, that there is commonality between you and your fellow transactor. If you are both within the US but in different regions, it will go up to the Federal level. If you are both in the Eurozone but in different countries, it will again go up to the Federal level.

TARGET2 is just the system within the Federated ECB level, where the account credit/debit balances of the various member Central Banks of the Eurozone are recorded.


^{Move along, there's nothing to see here.}