Media Release Reducing Foreign Exchange Settlement Risk in Australia – A Progress Report

The Reserve Bank today released Reducing Foreign Exchange Settlement Risk in Australia – a Progress Report.

The report, based on a survey of foreign exchange dealers conducted during October 1998, assesses recent progress in the management of foreign exchange settlement exposures in Australia. It follows on from a 1997 report, Foreign Exchange Settlement Practices in Australia, which detailed the practice, and the associated risks, of Australian dealers in settling foreign exchange transactions. That report found that foreign exchange dealers in Australia faced large risks as a result of the settlement process and that exposures lasting in excess of 24 hours were the norm.

The introduction in Australia, during 1998, of a real-time gross settlement system and legislation giving legal certainty to netting contracts provided a foundation for dealers to reduce the time during which they were exposed to foreign exchange settlement risk and also the amount at risk. The latest report found that some dealers have indeed achieved such reductions, for instance the average exposure where the Australian dollar has been sold and the United States dollar purchased has been reduced by around three hours. Nevertheless, much still needs to be done. The Bank remains committed to seeing further progress. It has passed the findings of the latest report to the Australian Prudential Regulation Authority, the supervisory authority for the majority of the individual dealers.

The Bank has continued to be active in industry developments, both local and international, to reduce foreign exchange settlement risk. In particular, it has been working closely with the industry to facilitate the inclusion of the Australian dollar as a currency to be settled by the proposed Continuous Linked Settlement (CLS) Bank.

A copy of Reducing Foreign Exchange Settlement Risk in Australia – a Progress Report can be obtained from the Reserve Bank's Information Office, and is available on the Bank's web site http://www.rba.gov.au.