paymentversuspayment

Payment versus payment, often abbreviated PvP, is a settlement mechanism in which two payments in different currencies are settled only if both legs can be fulfilled. The goal is to eliminate or greatly reduce principal risk in cross-border and cross-currency settlements, ensuring that a party does not pay one currency without receiving the other in exchange.

In practice, PvP is typically implemented through a centralized settlement facility or settlement bank that coordinates the simultaneous or near-simultaneous exchange of funds in the relevant currencies. A trade or instruction is only considered final when both legs are ready to settle, and funds are made irrevocable through segregated accounts, pre-funded liquidity pools, or collateralized arrangements. One well-known application is the FX market, where PvP is used to settle large-value currency trades across multiple currency corridors, most prominently via CLS Bank International, which operates a multi-currency PvP settlement service. The mechanism is designed so that settlement of one currency occurs only if the corresponding settlement in the other currency can occur.

PvP is closely related to delivery versus payment (DVP) concepts used in securities settlement, where securities delivery and payment occur against each other to reduce risk. While PvP focuses on simultaneous currency settlements, DVP applies to securities to mitigate market and settlement risk. Limitations of PvP include liquidity requirements, infrastructure needs, and reliance on coordinated participation among banks and settlement systems.