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BOJ to support new foreign exchange settlement bank+

TOKYO, Aug. 6 Kyodo

The Bank of Japan (BOJ) plans to allow a planned international foreign exchange settlement bank to open an account at the central bank to help it to make transactions directly with participating banks, banking sources said Thursday.

The move is designed to promote settlements of foreign exchange transactions through the Continuous Linked Settlement Bank (CLSB), which will be set up by about 60 banks around the globe with the aim of reducing risks due to time differences involved in such settlement transactions, they said.

Seven major Japanese commercial banks and Norinchukin Bank, the central bank for agricultural financial institutions in Japan, are among the founding banks of the CLSB.

Central banks of other major industrialized nations are expected to follow the BOJ in allowing the CLSB to open accounts at their banks to allow banks participating in the CLSB to settle foreign exchange transactions around the clock to reduce time difference-induced risks.

The CLSB is expected to get off to a start as early as the fall of 1999 as the founding banks were concerned about the risk of time differences over settlements of foreign exchange transactions as in a 1974 case involving a U.S. and a German bank.

In the 1974 case, the U.S. bank failed to receive payments in dollars for marks from the German bank as the German bank was stripped of its bank license before the time of settlement.
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Publication:Japan Weekly Monitor
Article Type:Article
Geographic Code:9JAPA
Date:Aug 10, 1998
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