The objective of the paper is to present the construction and operating principles of the settlement system EURO 1 and assess its effectiveness. As the system is closely connected with two organisations, the Euro Banking Association and the EBA Clearing Company, its current manager, the paper starts by discussing the structure and objectives of these.

EBA's mission is to initiate and support the development of payment infrastructure in Europe. EBA is the creator of the EURO 1 payment system, based on the technical facilities of the former ECU Clearing System. The latter was designed to settle cross-border payments denominated in ECUs. At the end of 1998, EBA handed the system over to EBA Clearing Company. In 2000, EBA developed and implemented the first European cross-border retail payment system - STEP 1. As at December 2001, EBA is an association of 153 banks from 21 countries.

EURO 1 is a cross-border payment system settling euro payments in the form of credit payment orders. Although the amount of an order is not restricted in any way, the system is geared towards large-amount orders. EURO 1 is a netting system, which means that the payments are balanced against each other, the resulting mutual net payables and receivables calculated and subsequently settled.

EURO 1 began to operate on 4 January 1999, the day when the euro was introduced in its non-cash form. It was the first private system settling euro-denominated payments. EURO 1 operates in close connection with the European Central Bank, which acts as its supervisor, settlement agent and the depositary of liquidity pool.

As at December 2001, the participants of EURO 1 include 97 key international banks (out of which 73 banks are direct, and 24 indirect participants) form 20 countries (all EU countries, Australia, Japan, Norway, the USA and Switzerland).