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Foreign Exchange

Leading EM central banks in talks with CLS

Representatives from the Chinese and Russian central banks are among a group of leading emerging markets (EM) that are in advanced discussions with CLS about adding their currencies to the FX settlement facility.

A report in the Financial Times on Wednesday says CLS CEO David Puth, speaking on the sidelines of the Sibos banking conference in Japan, indicated that CLS is also in talks with the central banks from Brazil, Chile and Thailand about adding the BRL, CLP and THB in addition to the RMB and RUB. CLS spokeswoman Liz King confirmed that the international banking initiative is in “ongoing discussions” with the EM central banks about adding their currencies to the settlement system and that the talks have been taking place for some time.

FX settlement risk, wherein the potential exists for one party to fail to pay another party currency sold in the market in exchange for another currency, is a long-standing concern for global central banks because of its potential to create systemic risk in the global financial system.

If the RMB or RUB were added to the CLS settlement system, it would signal a new level of willingness by the Chinese and Russian central banks – which are notoriously protectionist – to see their currencies more freely traded in the wider global market.

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