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

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  • 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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  • Kahn, Charles M. & Roberds, William, 2001. "The CLS bank: a solution to the risks of international payments settlement?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 191-226, June.
  • Handle: RePEc:eee:crcspp:v:54:y:2001:i:1:p:191-226
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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, January.
    2. Herbert L. Baer & Virginia G. France & James T. Moser, 1995. "Determination of collateral deposits by bilateral parties and clearinghouses," Proceedings 473, Federal Reserve Bank of Chicago.
    3. Lyons, Richard K., 1998. "Profits and position control: a week of FX dealing1," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 97-115, February.
    4. 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.
    5. 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.
    6. 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. Marius Jurgilas & Antoine Martin, 2013. "Liquidity-saving mechanisms in collateral-based RTGS payment systems," Annals of Finance, Springer, vol. 9(1), pages 29-60, February.
    2. Charles Kahn, 2013. "Private payment systems, collateral, and interest rates," Annals of Finance, Springer, vol. 9(1), pages 83-114, February.
    3. 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.
    4. Fischer, Andreas M. & Ranaldo, Angelo, 2011. "Does FOMC news increase global FX trading?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2965-2973, November.
    5. repec:eee:finsta:v:34:y:2018:i:c:p:1-11 is not listed on IDEAS
    6. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    7. Hajime Tomura, 2014. "Payment Instruments and Collateral in the Interbank Payment System," UTokyo Price Project Working Paper Series 032, University of Tokyo, Graduate School of Economics.
    8. Martin, Antoine & McAndrews, James, 2008. "Liquidity-saving mechanisms," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 554-567, April.
    9. Enghin Atalay & Antoine Martin & James J. McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York.
    10. Robert A. Eisenbeis, 2006. "Home country versus cross-border negative externalities in large banking organization failures and how to avoid them," FRB Atlanta Working Paper 2006-18, Federal Reserve Bank of Atlanta.
    11. Erik Devos & Thomas McInish & Michael McKenzie & James Upson, 2014. "Naked Short Selling and the Market Impact of Fails-to-Deliver: Evidence from the Trading of Real Estate Investment Trusts," The Journal of Real Estate Finance and Economics, Springer, vol. 49(4), pages 454-476, November.
    12. Holthausen, Cornelia & Monnet, Cyril, 2003. "Money and payments: a modern perspective," Working Paper Series 245, European Central Bank.

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