On the effects of FX settlement on liquidity
Research published by Bank of England shows how the risks to financial stability arising from global liquidity management depend on the settlement of foreign exchange transactions carried out by large international banking groups who finance liquidity shortages in one currency by using surpluses in another.
The research analyses these risks in a game of asymmetric information. The main finding is that the transition from local to global liquidity management, coupled with better co-ordination in
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