What It Takes to Close the Gap

The subject of this series is not whether FX settlement reform has worked. The evidence answers that question clearly: it has reduced the share of obligations exposed to principal risk. The harder question is why more than $1.4 trillion still settles each day without that protection, and what a credible next phase would have to change. The answer is a coverage problem. A trade is protected only when the counterparties, currency pair, product, legal framework, liquidity and operating window can enter the same conditional settlement path.

The answer is a perimeter problem

The April 2025 BIS survey recorded $14.186 trillion of average daily gross financial obligations. Payment-versus-payment covered $5.157 trillion, or 36 percent, and eliminated FX settlement risk for that settlement leg. Another $7.6 trillion, or 54 percent, used intragroup settlement, pre-settlement netting or timing-controlled bank accounts that mitigated but did not eliminate risk. The remaining $1.416 trillion—10 percent—settled gross bilaterally and remained exposed for the full trade value if one side paid and the other failed.

That is the direct quantitative answer to the title. Ten percent of a very large daily settlement base is still a large amount. “Fully exposed” is a statement about the loss boundary of the settlement method, not a forecast that $1.416 trillion will be lost. The survey measured actual two-way-payment settlement during April 2025, not all FX turnover, and a trade can carry exposure without failing in the observation period.

The causal answer requires one more distinction. Some gross bilateral trades were inside the nominal perimeter but did not use it. The survey identifies $347 billion a day, or 25 percent of gross bilateral settlement, as eligible for an applicable PvP system. The currency pair and product qualified, and the counterparty had direct or indirect access. Yet eligibility did not guarantee use. Instructions could miss a cutoff; a bank could face credit-exposure-management problems with correspondent banks used to reach the system; or the system’s payment schedule could be difficult to meet when local-currency funding was less liquid. These explanations are anecdotal, not a mutually exclusive decomposition.

The rest of the gross bilateral amount was outside the applicable PvP perimeter. Three quarters of gross bilateral trades were not eligible. The reported reasons overlap: 57 percent involved a counterparty without direct or indirect access, 36 percent involved a currency pair outside the eligible set, and 37 percent involved a trade type outside the system’s design. The figures cannot be added. A single trade can lack access, use a non-eligible pair and require a product or timing that the system does not support.

This is why the remaining exposure should not be explained as a simple preference for unsafe settlement. The strongest method is a shared condition, not a property that a bank can apply to any trade at will. A large dealer may have access while a customer or non-bank intermediary does not. A currency can be important in global markets while lacking the legal finality, convertibility, local liquidity or payment-system reliability needed for a PvP service. A trade can involve eligible counterparties and currencies but still fall outside the settlement window because its product requires same-day payment.

The historical evidence shows both achievement and unfinished work. Excluding intragroup settlement, gross bilateral settlement fell from 32 percent in the 2006 CPSS survey to 15 percent in the 2025 survey. PvP rose more modestly from 54 percent to 56 percent. Pre-settlement netting nearly doubled from 12 percent to 23 percent and became the main driver of the reduction in the exposed share identified by the BIS. These comparisons have limits: the 2006 survey excluded intragroup settlement, and methodological changes prevent comparison with the 2019 and 2022 settlement-risk surveys. They support directional progress, not a perfectly controlled estimate of one reform’s effect.

The absolute remainder persists because the market did not stand still while the protection perimeter improved. Average daily FX turnover rose from $1.5 trillion in 1998 to $7.5 trillion in 2022.