0
$\begingroup$

From Lannquist,2020, p.6, the wholesale Central Bank Digital Currency (CBDC) could reduce settlement risk and counterparty risks.

I am wondering what is the intuitive difference between these two risks? From Investopedia( here, here) , these two terms are indistinguishable to me, mostly about default risk.

$\endgroup$

1 Answer 1

2
$\begingroup$

Investopedia explains the difference clearly:

What Is Settlement Risk? Settlement risk is the possibility that one or more parties will fail to deliver on the terms of a contract at the agreed-upon time.

Default Risk: Default risk is the possibility that one of the parties fails to deliver on a contract entirely.

I don't think it can be explained more clearly than that.

$\endgroup$
4
  • $\begingroup$ Thanks a heap. And sorry for any inconvenient. I did edit the question. Could you please help me to sort it out. Thank you in advance. $\endgroup$ Commented Nov 20, 2021 at 20:36
  • $\begingroup$ And even as above, the difference between Settlement Risk and Default risk is still not really clear to me. I still cannot separate the settlement risk from default risk. Is there any example to make it more clear? Heaps of thanks $\endgroup$ Commented Nov 20, 2021 at 20:37
  • 1
    $\begingroup$ @Louise I dont understand how you can get even more intuitive here. Ok let me give you example maybe that will help you. SR: you owe me 100 dollars payable 30.12.2021 There is risk that you will not pay on time and pay 100 dollars at 15.1.2022. DR: there is risk I will never see full 100 dollars again you don't pay at all or pay only portion of it $\endgroup$
    – csilvia
    Commented Nov 20, 2021 at 23:59
  • $\begingroup$ Ah now I see, thanks a lot @csilvia, thanks for your patience. $\endgroup$ Commented Nov 21, 2021 at 0:02

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.