Abstract

Risk associated with the settlement of foreign exchange transactions is a topic of concern to central bank counsel and is currently the focus of international attention. This chapter draws directly from the work of the Committee on Payment and Settlement Systems of the Central Banks of the Group of Ten Countries (the Committee), as most recently reflected in the report published by the Bank for International Settlements (BIS), entitled Settlement Risk in Foreign Exchange Transactions (the Report).2 In essence, the Report analyzes the existing arrangements for settling foreign exchange trades and offers practical approaches for reducing foreign exchange settlement risk. The approaches are grounded in the belief that individual banks and industry groups, with cooperation (and a little friendly encouragement) from central banks, can make important progress in reducing this risk.