Kiwi joins CLS system

The New Zealand dollar has been included in an international system that reduces the risk of things going wrong when substantial foreign exchange transactions are settled across national boundaries.

Financial institutions face the risk of severe losses - and even bankruptcy - if transactions collapse part way through.

To minimise this possibility major international banks have a "continuous linked settlement" (CLS) system where both legs of foreign exchange transactions are settled simultaneously.

This is done via New York-based CLS Bank which holds accounts for each settlement member and an account at each eligible currency's central bank.

Reserve Bank Governor Alan Bollard said the kiwi's inclusion was a substantial step forward for financial stability in New Zealand.