What is the CLS payment system

The emergence of the institution of online payment systems was a natural continuation of the evolution of financial relationships and the Internet. Digital money and virtual currencies needed resources to carry out all kinds of transactions in any direction 24/7/365. Naturally, not all of them are equally known and appeared simultaneously. However, they have a number of specific advantages and disadvantages.

The CLS payment system is a mystery for many Internet users. People do not know what the features of the system are, for what purposes it was created and on what principles it works. In practice, everything is simple. CLS stands for "continuous linked settlement", which literally means "continuous linked settlement". The task of the system is to make and conversion foreign exchange transactions outside the context of any state. It can rightfully be considered a global platform.

CLS history

The creators of the new system were a group of dealers in the foreign exchange market, who in 1997 took the initiative to create a common settlement bank - CLS Bank. Two years later, a team of dealers managed to obtain a license from the US authorities, opening the way for transactions in the foreign exchange market. Since 2002 (the first year of the banks operation) 67 largest companies from almost 20 countries of the world have acted as holders of the institutions shares.

The wide capabilities of the system, high level of security and professional staff have made it popular and in demand in the world. The largest banks in many countries came out in favor of the creation and development of such a bank. CLS Bank is considered a US credit institution with a special status. The Central Banks of many countries and the Federal Reserve System of the United States of America act as regulatory authorities.

In simple terms, the task of the payment system is to organize multicurrency netting, which made it possible to reduce the Herstatt risk in the Forex currency market. Risk elimination is ensured by following "payment-versus-payment". Settlement transactions using one currency are carried out in a situation where settlement of settlement takes place in another currency. CLS Bank acts as an intermediary, is the third party to the transaction. Its task is to carry out settlement operations.

As mentioned, the bank did not start working immediately, but only in the fall of 2002. At first, its functions included servicing settlement transactions in the national currencies of the EU, USA, Japan, Switzerland, Australia, Canada and Great Britain. Over time, the currencies of Norway, Sweden, Denmark, New Zealand, Hong Kong, Israel, Singapore and others joined the group.
 

How are calculations done?

The principle of operation of the CLS payment system is simple, but it differs from the usual scheme of interbank settlements, where counterparties for transactions transfer the exchanged funds through their own banking institutions (performing the functions of counterparties). Here, counterparties who use the system make settlements using CLS Bank services. This means that all transactions are carried out through this settlement organization according to the principle mentioned above - payment versus payment. In this case, CLS Bank makes payment for the purchased currency only after receiving the sold currency. This approach minimizes the risks of transactions and provides maximum protection for customers and their finances.

Each founder of a banking institution has an account. Thanks to this, each client bank can send instructions to CLS Bank regarding settlement transactions. For its part, the bank fulfills the task at the time specified by the client. For other users of the system, direct access to operations through the bank is closed. They have to recruit existing members who have open correspondent bank accounts.

The time of the exchange operation is indicated for each specific currency. Time is local. In this case, the payment takes place in several steps:

- Exactly at midnight European time, the system participant (dealer) sends detailed instructions on further actions to the settlement banking institution.

- At 6.30 am CLS Bank calculates the net position of the players for each of the monetary units with the obligatory distribution of information on payments to dealers (drawn up in the form of a table).

- settlement operations are carried out from 7 am to 12 noon.

During the day, the settlement bank has the right to use 7 national RTGS systems. In this case, in Australia, the calculation is made during the session, which is held in the evening. Payments between bank users are made on the basis of “net settlements”, and between CLS Bank and members - on the basis of “gross settlements”.

Experience of the system in the world and in Russia The CLS payment system is in great demand. According to the latest data, more than half of all calculations related to the conversion (exchange) of currencies are in its turnover. Every day, about six hundred thousand exchange transactions pass through the "hands" of the system, the total amount of which exceeds 3.5 trillion US dollars.

Initially, the system carried out transactions with a limited number of currencies (there were only seven of them), but since the end of 2015, the number of available currencies has increased 2.5 times (up to 18). As for Russia, the Central Bank of the country is in favor of joining the national currency to the international system. If this happens, the ruble will become a convertible currency, which will make it possible to exchange the monetary unit of the Russian Federation abroad.

The innovation could free the hands of entrepreneurs and tourists who carry out activities (travel) abroad. Tourists know that it is impossible to exchange many currencies for Russian rubles when traveling abroad. On the other hand, in Finland, for example, the local currency is easily converted into rubles (even in banks). And this, despite the fact that the ruble is not part of the payment system.

It is difficult to predict how long it will take for the ruble to enter the common system. The time for the Central Bank to connect to CLS Bank can take several months or several years. Do not underestimate the fact that such changes can lead to an outflow of capital from Russia and an increase in volatility (fluctuations) in the currency market.

If the program is nevertheless implemented, then the Central Bank of Russia will become the eighteenth in the list of banking institutions that have become part of the international system. At the same time, the Central Bank will have to undertake obligations to guarantee netting in the process of settlements through the CLS system, as well as to enable non-residents to open accounts in the countrys banks.