The focus is on reducing foreign exchange (FX) settlement risk and improving cross-border payments by broadening PvP adoption. PvP is a settlement mechanism that ensures that the final transfer of a payment in one currency occurs if, and only if, the final transfer of a payment in another currency takes place.

A cross-border payment often involves an FX trade that exposes the counterparties to settlement risk, including the risk of loss when one party to the trade delivers the currency it has sold to the counterparty but does not receive the currency it has bought in return. PvP arrangements can help to mitigate this risk and, depending on their design, substantially reduce funding costs by offering functionalities such as netting to reduce the counterparties' liquidity obligations.

The proportion of non-PvP settlement has increased since the early 2000s due to a combination of factors, including the lack of availability of PvP arrangements for some emerging market currencies, or existing arrangements being deemed too expensive or failing to cater to the specific needs of certain FX market participants.

The CPMI conducted a survey of five existing PvP arrangements and issued a call for ideas on new proposals for PvP settlement that yielded 16 responses from a range of interested parties, including existing infrastructures, global banks, new entrants and industry groups.

Based on an analysis of the industry input, the consultative report finds that, while existing PvP arrangements are available for the most-traded currency pairs and products, these solutions are not attractive to all potential users. New PvP solutions can complement the existing arrangements by expanding coverage to the retail market, and providing flexibility and functionalities such as real-time settlement or 24/7 operations, as well as providing for emerging market currencies. However, PvP arrangements face barriers to broad adoption. It is therefore key for private and public sector stakeholders, including central banks, to take on various roles to reduce these barriers.

The CPMI invites comments on this consultative document generally and the questions set out in the document specifically. Comments should be sent to the CPMI Secretariat (cpmi@bis.org) with "PvP consultation" in the subject line by 30 September 2022. All responses will be published on the website of the CPMI. Commercial or other sensitive information should not be included in the submissions, or may be included, with redactions for publication clearly noted.

As a next step, the CPMI will host workshops for private sector stakeholders and publish a final report reflecting stakeholders' comments. The final report will also include an updated analysis of the causes of non-PvP settlement based on the 2022 BIS Triennial Survey.