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

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Author Info
Charles M. Kahn
William Roberds

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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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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2000-15.

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Date of creation: 2000
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Handle: RePEc:fip:fedawp:2000-15

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Related research
Keywords: Risk ; Payment systems ; Foreign exchange;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard K. Lyons, 2006. "The Microstructure Approach to Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262205x.
  2. 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. [Downloadable!]
    Other versions:
  3. Herbert L. Baer & Virginia Grace France & James T. Moser, 1995. "Determination of collateral deposits by bilateral parties and clearinghouses," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 525-546.
  4. 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.
  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. [Downloadable!] (restricted)
  6. David L. Roscoe, III, 1998. "Continuous linked settlement," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 32-27.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
  2. Fischer, Andreas M & Ranaldo, Angelo, 2008. "Does FOMC News Increase Global FX Trading?," CEPR Discussion Papers 6753, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Rodrigo Andrés de Souza Peñaloza, 2003. "On Shadow-Prices of Banks in Real-Time Gross Settlement Systems," Working Papers Series 71, Central Bank of Brazil, Research Department. [Downloadable!]
  4. Enghin Atalay & Antoine Martin & James McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York. [Downloadable!]
  5. Antoine Martin & James McAndrews, 2008. "A study of competing designs for a liquidity-saving mechanism," Staff Reports 336, Federal Reserve Bank of New York. [Downloadable!]
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