The International Clearing Office

The International Clearing Office requires no finance of its own. It does not have to create a new international currency. It is impossible:

• to disentangle the mass of individual transactions which give rise to the various uncleared balances in the deficit countries and
• to ascribe any one particular balance, or part of it, to any one particular surplus country*.
  • The Gordian knot is cut by making all the surplus countries the joint owners of the balances in all the deficit countries.

In this way, every national currency is made into a world currency and the creation of a new world currency becomes unnecessary.

In this regard, the International Clearing Office does not require any special powers.

• It is not an agency for control.
• It is a purely administrative body, the central accounting office for the different National Clearing Funds.

It would be of no economic significance if a new international currency were created*. The holding of “a share in the Pool” would then be called a holding of “world currency”, but the backing of the world currency would just be the cash balances in the deficit countries.

The Clearing Funds of surplus countries:

• become indebted to their internal money markets*
• acquire an equivalent share in the Pool

Both their debt and their share in the Pool would be equal to their trade surplus.

• The Clearing Funds of the deficit countries are left with balances of cash in hand (equal to their trade deficits) which belong to the International Pool. -The Clearing Funds of countries with no surplus nor deficit will hold neither cash nor a share in the Pool.

This system is fully multilateral.

It is immaterial to each individual nation where it buys or sells. Whether it sells to a deficit country or to a surplus country, its National Clearing Fund will disburse national currency to the exporters at home. Thus, it will:

• decrease the amount of cash in the Fund, or
• increase the debt owed by the Fund to the internal money market.

Whether it buys from a deficit country or from a surplus country, its National Clearing Fund will receive national currency from the importers at home. Thus, it will increase its cash or reduce its debt to the internal money market.

All individual sales and purchases have the same technical effect, irrespective of the country to which goods are sold or from which goods are purchased. They have the same technical effect.

There is nothing in the technical set-up to induce any individual importer or exporter to choose his sources of supply or his markets, with reference to his country’s bilateral trade balances.

Under a regime of a multitude of bilateral clearings, this would be quite different: each country would always have some clearings with a trade surplus and some with a deficit.

• Britain, in our example earlier, would have ready cash for additional imports from Poland, but not for additional imports from America.
• America would have ready cash for additional imports from Britain, but not for additional purchases in Poland.

Under Pool Clearing, these differential stimuli do not exist.

• The identity of ownership of the various balances accumulating in deficit countries (and in deficit countries only) cannot be separately established.
• The main stimulus that remains is for the surplus country to spend its surplus—anywhere in the world.

This is a great advantage, because:

• it avoids the dangers and frustration of Bilateralism and
• allows world trade to flow according to whatever economic criteria may exist for the international division of labour, instead of setting up the arbitrary criterion of bilateral balance.

A trading system that enforces strict bilateralism is arbitrary and discriminatory.

The same does not necessarily apply to a system that enforces balance in the total trade of each country.

The principal aim of any new system is to achieve such global balance.

Many bilateral trade problems exist:

• A surplus country might be unwilling to increase its purchases.
• A surplus country might drain other countries of all their liquid means for making international payments and may even force them into default.

Free Trade

But balance is not an end in itself.

The task is to achieve balance at the right level.

• That level should be determined by those countries that need foreign goods.

This is the only possible meaning of the “Free Access” clause in the Atlantic Charter. It promises “enjoyment by all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world”

• Under bilateral clearings, each country has free access to the trade and raw materials of its customer- countries.
• Under Pool Clearing, access to trade is universally free.

Yet, no matter what is the technical set-up, every country must ultimately pay for what it buys. It must be able to supply as much in goods and services to the rest of the world as it receives.

This does not deny the possibility of making international gifts, grants-in-aid, Lend-Lease, or reparation payments. But they fall outside the scope of our investigation.

Our scope is exclusively on gainful trade. A system of multilateral clearing may be superior to a system of many bilateral clearings. But both are:

• merely technical systems, and
• dependent on more fundamental factors.