Reported by Ledger Insights.
Singapore-based Partior has successfully completed a proof of concept (PoC) for foreign exchange (FX) payment versus payment (PvP) settlement using its blockchain network. The PoC involved key participants, including co-founders JP Morgan and DBS Bank, along with Mizuho, Japan’s third-largest bank.
Partior already offers a production solution for instant 24/7 cross-border payments via correspondent banks. Other founders of Partior include Standard Chartered and Temasek.
Significance of PvP Settlement
PvP settlement is crucial in FX transactions as it ensures that both currency legs are exchanged simultaneously, thereby eliminating settlement risk. This method, known as atomic settlement in Distributed Ledger Technology (DLT) terms, is vital for mitigating potential financial losses.
Globally, most FX transactions are settled centrally through CLSSettlement, which processed $6.6 trillion in FX payment instructions daily in 2023, with a peak of $16.3 trillion in December. However, CLSSettlement supports only 18 currencies. Its DLT netting solution, CLSNet, does not provide PvP settlement.
A 2019 report by the BIS Committee on Payments and Market Infrastructures (CPMI) highlighted a decline in PvP coverage from 50% to less than 40% between 2006 and 2019, partly due to the increasing role of emerging markets. Furthermore, a 2019 survey indicated a potential daily loss risk of $2.8 trillion, with countries like the UK, Hong Kong, and Singapore facing potential losses exceeding their combined supervisory capital.
Partior’s PoC Details
The recent Partior trials specifically addressed settlement risk for both emerging market and advanced economy currencies. The solution supports 24×7 real-time atomic settlement and offers same-day value trades for those not opting for instant settlement. Partior plans to launch this solution later this year.
“By automating settlement matching through smart contracts, we’re not just reducing operational risks and costs, but also unlocking new business opportunities, particularly across EMDE currencies,” said Kelvin Tan, DBS Head of Innovation for Global Financial Markets.
Other DLT PvP Solutions
Several other DLT-based PvP solutions are already in use at scale. Between 2018 and early 2024, HSBC’s FX Everywhere was used to settle 16 million FX trades worth more than $8 trillion. It used Baton System’s Core FX solution, which Wells Fargo also employed. In March 2024, Baton signed a deal for the solution to be operated by OSSTRA, the post-trade joint venture between S&P Global and CME Group.
Another notable company in this space is Fnality, a joint venture between 20 institutions. Despite facing delays in obtaining a UK license, Fnality aims to operate a shared settlement system with a settlement token backed by central bank deposits. To enable PvP, it requires clearance from additional central banks and is targeting the United States and Europe, though it is unlikely to focus on emerging markets in the near term.
The Future of PvP with Partior
With the successful PoC, Partior is poised to capitalize on the growing need for efficient and secure FX settlements, particularly in emerging markets. As it prepares to launch its solution later this year, Partior’s advancements in blockchain technology hold promise for enhancing financial inclusion and fostering economic growth in the region.
View the original publication from Ledger Insights here.
Image by Daniele Levis Pelusi from Unsplash
Read other stories: Inaugural Malaysia Blockchain Week MYBW to kick off in Kuala Lumpur