Robust Asian forex trade has dollar-settlement risk -- study

Agence France-PresseFirst Posted 11:33:00 06/17/2008Filed Under: "The overwhelming use of the US dollar as a vehicle currency heightens the vulnerability of Asian currencies to settlement risk."
Each step in a foreign exchange transaction is usually settled in the currency's country of issue, which means that deals involving US dollars can be affected by the considerable time difference between Asian markets and New York.
"One currency might have to be paid before receipt of the other currency can be confirmed," the authors, Yosuke Tsuyuguchi and Philip Woolridge, said.
"This can result in sizeable, temporary counterparty exposures."
The paper concluded that "greater use of a regional currency in intra-regional transactions, in place of the US dollar, is one of several ways in which settlement risk could be reduced."