CLS: providing a solution or creating more headaches?

Continuous Linked Settlement is touted to eliminate settlement risk for foreign exchange transactions, but will it just create more problems?
The Continuous Linked Settlement CLS system, due to be implemented worldwide to reduce foreign currency settlement risk, presents fresh problems for central banks and markets that will take time to solve, says one banker who declined to be named.

Under the CLS system, member banks have to hold multicurrency accounts at the CLS Bank, which will settle trades by debiting the account of the seller for the currency and crediting that of the buyer. Settlement members will be allowed a short position limit in each currency and an aggregate short position limit across currencies. Both sides of each trade will settle simultaneously within each bank's aggregate short position limit to achieve a form...

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