Euroclear now offers dollar settlement for the first time

Euroclear is the first non-U.S. financial services platform which has been allowed to connect to the U.S. Federal Reserve’s National Settlement Service.

Euroclear, a post-trade services provider stated, its Ireland and UK businesses has linked up with the U.S. Federal Reserve settlement service. Thanks to this, its clients can now settle transactions with dollars via a central bank payment model, for the first time.

Significantly, the Euroclear is the first non-U.S. financial services infrastructure which has been allowed to connect to the Fed’s National Settlement Service.

Although Euroclear UK and Ireland (EUI) already offers settlement in “central bank money” for sterling and euro transactions, hooking up with the Fed allows it to expand the service to dollars. Central bank or sovereign money refers to money issued by a central bank.

EUI’s existing dollar settlement was based on commercial bank money, which is generated when banks issue loans or conduct transactions in excess of their actual currency holdings.

According to a statement from Euroclear, clients will now be able to get dollar cash proceeds from sale of securities from the moment each transaction has been settled. Banks would be protected from possible risks stemming from another settlement bank’s failure to pay.

Naturally, the ability of settlement banks to make payments in the Fed’s accounts would be underpinned by funds they hold with the Bank of England, said Euroclear.

According to Ian Dowglass, EUI’s head of innovation and business transformation, a number of big clients have been demanding for the service in USD. It has offered settlement in central bank money for sterling since 2001 and settles an average 425 billion pounds worth of sterling transactions per day.

Dollar transactions, on the other hand, were between $2 billion and $5 billion a day.

“It’s all part of risk reduction. What clients now get is absolute central bank settlement in all securities transactions in three currencies,” said Dowglass. “There is no longer a layer of commercial bank risk.”

Globally, the Euroclear group has settled the equivalent of 733 trillion euros in securities transactions in 2017. vide 215 million transactions; it also held 28.6 trillion euros in assets for clients in 2017.

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