This purely financial bank-of-banks role has diminished over time, however, relative to the size of global financial markets. The BIS still has a balance sheet of about SDR 260 billion<sup>90</sup> and for a number of countries it is an important repository for reserves and provider of vital services for central banks. However, private sector cooperative mechanisms have come to dominate the settlement of foreign exchange transactions. For example, in 2002, the Continuous Linked Settlement Bank (CLSB) was founded with the objective of reducing counterparty risk in the settlement of financial transactions in foreign currency. It provides settlement services in 17 different currencies and its membership is comprised of 39 large private sector financial institutions. The CLSB has expanded rapidly, and they report that 58 percent of global foreign exchange trading is settled through the CLSB.<sup>91</sup> The figures are large: in 2010, CLSB serviced $1.4 trillion in foreign currency transactions including a variety of swaps, forwards and option contracts.

With the decline of its foreign exchange transaction business, the BIS has become a critical research and data center for servicing financial policy coordination through the Basel accords and hosts the Financial Stability Board. Much of these deliberations go far beyond payment systems and pure monetary policy to focus more on financial regulatory policy and financial supervision reforms.

In cases of deep economic integration, one could imagine countries unifying their payment systems. This process would normally require a common currency, and even in the Eurozone, full integration of payment systems across countries is not yet a reality. The Eurozone (along with the broader EU) is moving forward in this regard with the Single Euro Payments Area (SEPA) project under the auspices of the European Central Bank (ECB), as well as via EU resolutions for the broader European Union. Security measures are already progressing at the national level to facilitate the integration of payment systems, including the move towards chip-based credit and debit cards (instead of magnetic strips), but there is also a need for improved interoperability between national payment infrastructures.<sup>92</sup> “E-payment” systems are also advancing, but at a slow pace.

A related issue is the settlement of payments for new instruments that might arise as part of reforms to the international monetary system. For example, if the IMF were to issue tradable securities denominated in SDRs or in some new global currency unit, then until deep and liquid markets are established for those securities, there may be a need for a market maker role. The IMF would be the likely candidate. Another option on the table—following the ad hoc swap arrangements between central banks during the global crisis – is to establish a more permanent role for transacting swap arrangements. There could be a role either for the IMF or the BIS in establishing such a facility. In addition, if a new international currency were to be created, then there would be a role for the BIS or IMF to facilitate payment between central banks for a new currency to be used in international transactions.93 Payment system integration might be a natural consequence of a new international currency – whether it be a substitute or complement to existing national currencies. The experience of the Euro might be useful in understanding how that process might work.

> 90 BIS Statement of Account for June 2011.

> 91 The 58 percent figure is a share of a reduced base as compared to BIS survey reports of total foreign currency trading activity.  The reduced base eliminates transactions that do not present any settlement risk, so that there would be no need for a specialized settlement counterparty.  See “CLS market share,” February 2011 available at www.clsb.com.

> 92 See European Central Bank (2010).

> 93 See Annex 2 of IMF (2011b) for a description of how the settlement process might work for SDR-denominated assets.

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