Settlement of money and securities in central bank money reduces risk

Economic Commentaries, News In times of change, it is important that the actors in the financial system work to provide safe systems for the settlement of money and securities. Lena Wiberg writes in a new Economic Commentary that one way of reducing risks in settlement is to settle in central bank money; as a central bank cannot go bankrupt, the credit risk is eliminated.

The safe settlement of money and securities is essential for the smooth functioning of the financial system. The traditional payments and securities markets are currently undergoing a structural transformation, driven by, among other things, increased competition through new technologies and new players, as well as new legislation.

Settlement in central bank money is advocated in both legislation and international principles as it eliminates the credit risk for the participants on the institution where the settlement takes place. However, it is not always easy or even practical to settle in central bank money and therefore settlement in commercial bank money may sometimes be necessary, which can entail a credit risk.

The Riksbank monitors and analyses market developments from a financial stability perspective to ensure that central bank money is used in a way that contributes to minimising risk in the settlement of money and securities.

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Updated 20/02/2024