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The CLS bank: a solution to the risks of international payments settlement?

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Author Info

  • Kahn, Charles M.
  • Roberds, William

Abstract

Foreign exchange transactions are subject to a unique type of settlement risk. This risk ultimately stems from the difficulty of coordinating separate settlements in two different currencies. Settlement of foreign exchange transactions through the proposed CLS (“Continuous Linked Settlement”) Bank has been discussed as a potential solution to this problem. This paper describes the CLS proposal and analyzes the incentives it places on banks engaged in foreign exchange transactions. The analysis shows that while settlement through the CLS Bank may represent an improvement over current arrangements, some important problems associated with foreign exchange settlements will remain.

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File URL: http://www.sciencedirect.com/science/article/B6V8D-44RRB3X-C/2/d060404f276f64dbd84ee49b4b67011d
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Bibliographic Info

Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 54 (2001)
Issue (Month): 1 (June)
Pages: 191-226

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Handle: RePEc:eee:crcspp:v:54:y:2001:i:1:p:191-226

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Web page: http://www.elsevier.com/locate/jme

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References

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  1. Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262205x, December.
  2. James T. Moser, 1994. "Origins of the modern exchange clearinghouse: a history of early clearing and settlement methods at futures exchanges," Working Paper Series, Issues in Financial Regulation 94-3, Federal Reserve Bank of Chicago.
  3. Richard K. Lyons., 1997. "Profits and Position Control: A Week of FX Dealing," Research Program in Finance Working Papers RPF-273, University of California at Berkeley.
  4. Herbert L. Baer & Virginia Grace France & James T. Moser, 1995. "Determination of collateral deposits by bilateral parties and clearinghouses," Proceedings 473, Federal Reserve Bank of Chicago.
  5. Lyons, Richard K., 1997. "A simultaneous trade model of the foreign exchange hot potato," Journal of International Economics, Elsevier, vol. 42(3-4), pages 275-298, May.
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Cited by:
  1. Robert A. Eisenbeis, 2006. "Home country versus cross-border negative externalities in large banking organization failures and how to avoid them," Working Paper 2006-18, Federal Reserve Bank of Atlanta.
  2. Martin, Antoine & McAndrews, James, 2010. "A study of competing designs for a liquidity-saving mechanism," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1818-1826, August.
  3. Andreas M. Fischer & Angelo Ranaldo, 2008. "Does FOMC News Increase Global FX Trading?," Working Papers 2008-09, Swiss National Bank.
  4. Jamie McAndrews & Antoine Martin, 2007. "Liquidity saving mechanisms," 2007 Meeting Papers 165, Society for Economic Dynamics.
  5. Enghin Atalay & Antoine Martin & James McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York.
  6. Holthausen, Cornelia & Monnet, Cyril, 2003. "Money and payments: a modern perspective," Working Paper Series 0245, European Central Bank.

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