The Free Trade Alternative to Bretton Woods and Regionalism as the EU and ASEAN

Solutions to Over-importing Icon

August 1, 2021

There are three solutions to over-importing:

1. Loans

The deficit country could be given a loan.

This is always the easiest, though not always the most satisfactory way out. Non-industrialized countries that seek development should resort to loans. But loans should not be made if they would not lead to the necessary adjustments in their respective structures of production.

Balance should be the watchword. International loans, which allow a (justifiable) long-term lack of balance, should be the exception. This might be considered too much to ask for. But however that may be, without adherence to some strict principles of this sort, no system, whatever its technical design, can do lasting service. No system can ever enable some countries to follow a permanent policy of buying from the rest of the world more than they sell. Nor can it enable other countries to follow a permanent policy of selling more than they buy, and at the same time guarantee the creditor his money back, when he (or his country) is unwilling to accept it in the form of goods and services.

2. Devaluation

The deficit country’s currency could devaluate.

There might be some fundamental rearrangements of the internal structure of production of the country concerned.

How, then, could the “exception”, i.e. capital movements for economic development, be worked into the system of Pool Clearing?

The Clearing Fund balances from past business must not be consolidated into long-term interest-bearing indebtedness. On principle, credits should be given only in connection with new deliveries to the deficit country.

The difference between a conversion of existing clearing balances and making new deliveries on credit may appear slight. If a deficit country gets dangerously near its maximum deficit limit, it makes no difference whether it transforms a part of the Clearing Fund balance into a bonded debt, or obtains current imports on credit.

Assume that Poland has incurred a large deficit. [imported more than it exported]

  • The Polish Government (or even some private firm or institution) takes up a loan in the US.
  • The American creditor pays dollars into the US Clearing Fund.
  • The Polish Clearing Fund disburses a corresponding amount of zlotys to the Polish borrower [Polish government].

This would be a purely financial transaction. It would let the US sell more without increasing the internal indebtedness of her National Clearing Fund (which represents her export surplus and her share in the Pool). Poland could buy more without increasing the cash balance of her National Clearing Fund (which represents her import surplus and her indebtedness to the Pool). If this is admissible, then the principal feature of Pool Clearing is marred: the pressure which the system exerts on potential surplus countries to dissipate their surpluses by increased purchases is relaxed.

1. Lending as a Solution to Devaluation

There are two ways to handle this problem.

  1. Let us assume that all “financial” lending operations under Pool Clearing are prohibited.

If Poland needs more foreign goods and services than she can immediately pay for with her exports, she could obtain a foreign credit “in kind”1. She would ask some countries for specific deliveries on a deferred payment basis. She would then obtain goods without being obliged to pay into its National Clearing Fund at once. Instead, she would issue a bond* specifying the interest and amortisation payments that will be made later. When these latter payments fall due, they would take the form of money and would be made into the Polish National Clearing Fund, like any other international payment under the scheme.

This kind of arrangement would make international capital movements far more conscious and more easily recognisable. New borrowing would be for specified purposes only. It would take the form of imports (which might be producers’ or consumers’ goods) without immediate payment. Interest and amortisation charges would appear as a mortgage on the future overdraft facilities of the debtor country. The objection is that in this way, the lending operation itself (although not the return flow of interest and amortisation) would become bilateral. For example, Poland could not borrow in the US and then spend the proceeds on additional imports from Britain. It is difficult to estimate the weight of this objection.

  1. Alternatively, the lending might be in an agreement between the U.S. Clearing Fund and the Polish Clearing Fund.

Under additional imports made by Poland up to a specified amount are not to be paid for by the Polish importer through the Polish Fund, but by the American creditor through the American Fund. This arrangement would give Poland freedom to expend the loan money anywhere in the world. The objection that might be raised against it is that it would lend itself too easily to misuse. The weight of this objection, again, is difficult to estimate.

Whichever of these two alternatives is chosen, the debtor country will always be able to discharge the legal obligations of its indebtedness.

Such payments will increase the cash balance in its National Clearing Fund. It might raise it to the upper limit specified under the general scheme. They would act in the same way as payments made for additional current imports and create the same problems of adjustment.

Similarly, the National Clearing Fund of the creditor country would make corresponding payments to the creditor, thereby possibly increasing its own indebtedness to the internal money market. These would:

  • increase its share in the Pool,
  • act in the same way as payments disbursed for additional current exports, and
  • create the same problems of adjustment.

It would then be up to the creditor country (assuming that it is also a surplus country) to avoid becoming too large a holder in the Pool, by increasing its foreign purchases anywhere in the world.

This arrangement would show quite clearly the essential nature of international capital movements.

From the debtor country’s point of view, they always are an exchange of today’s import surpluses against future export surpluses. They are economically soundwhenever we expect that the debtor country can increase its future capacity to export by increasing its current imports. If import surpluses are incurred without developing internal productivity and capacity to export, then existing maladjustments are not resolved and their solution is merely postponed. Any technical system cannot prevent such escapist policies. But the arrangements suggested here will clarify the position sufficiently to make such policies less likely.

2. Make the Devaluation Short-term Only

  1. Devaluation is the second solution when a debtor country is unable to sell enough to pay for its purchases.

There is normally some level for each currency at which exports and imports will balance. But here again, “balance” is not everything. Equilibrium rates of exchange in many cases may mean disequilibrium somewhere else. They might, for instance, deteriorate the country’s “terms of trade” as to be unbearable. But these are probably special cases. On the whole, a correct adjustment of exchange rates is the most important.

The establishment of “balance” is the principal criterion for correctness and the object of the changes. This balance is the avoidance of undue cash holdings or debits in the various National Clearing Funds.

Pool Clearing Exchange Rates

Under Pool Clearing, the determination of the rates of exchange comes from the cooperation of the different National Clearing Funds.

No one country is able to settle the rates of exchange of its own currency in opposition to the rest of the world, as has been possible hitherto.

  • The US Clearing Fund receives US dollars from a US importer who has bought goods from an exporter in Japan
  • It then advises the Japan Clearing Fund of the received US dollars
    • It is up to the Japan Clearing Fund to pay the exporter in Japan at the ruling rates of exchange*

*Superphysics Note: In Pantrynomics, all currencies will be pegged to grains

Thus, in order to alter the value of its currency, the US Clearing Fund must first seek agreement with all other Clearing Funds, so that they will actually make their disbursements to their respective home exporters at the new rates.

Can such an international agreement on exchange rates be obtained?

This question sounds more formidable than it really is. Under any system, even in an unorganised one, there must always be agreement between those who exchange currencies. Nobody proposes to leave these dealings entirely unorganised. Governments are already accustomed to taking a hand in them. Therefore, it will not be too difficult to get some working agreement to start with.

Once a start has been made, it must be left:

  • to the actual development of trade (and lending) and
  • to a process of trial and error to find those rates of exchangewhich most nearly establish an equilibrium position between the different countries.

Without some organised international effort, this cannot be found and the necessary revisions which changing circumstances demand cannot be carried through. There will be Exchange Equalisation Funds, no matter what system is finally adopted. These institutions will get into touch with one another to settle policy on a wider or smaller scale. In the current stage of world political development, Pool Clearing does not add to the difficulties inherent in international co-ordination. In fact, the Pool might be merely seen as an Exchange Equalisation Fund on a world scale.

The inner mechanism of Pool Clearing, moreover, itself provides time and inducement for co-operation.

It becomes unattractive to accumulate surpluses. But it becomes also unattractive to all participants to allow the deficit of any country to rise dangerously near its maximum limit. It is in the interest of both potential surplus countries and potential deficit countries to find an equilibrium level of exchange.

Before this, this was not the case. No matter how hard deficit countries might have been striving to reach equilibrium rates, the surplus countries found it useful to hang on to their surpluses and to answer the devaluation of other currencies by a devaluation of their own. Competitive devaluations, under Pool Clearing, would be completely pointless.

After each country accepts the duty of keeping its own Clearing Fund in balance and grants the right to every other country to keep this balance in their own case,there should be some international agency to provide the machinery for reaching common decisions.

The International Clearing Office might fulfill this function. But this would imply that its power and status would have to be raised far beyond that necessary for carrying out the purely formal “trustee” functions of “pooling”, as they have been described.

Our choice in this matter is not very wide:

  • we can leave the conduct of economic affairs to a multitude of sectional interests, whether private or national. This shall be at the mercy of forces which have landed us in economic and political disasters.
  • Or we can make an attempt at some form of world planning. Such an attempt may be successful, if the strongest nations take a determined lead and accept responsibility not only for the well-being of themselves but for the world as a whole

All economic phenomena, in an era of quick transportation and intensive economic exchange, are interconnected.

It would be foolish to propose that everything should be controlled centrally. But international trade is of fundamental importance as a strategic point of control. It is time for some international control in this field. The object of control* should be merely to:

  • achieve balance in the Clearing Funds of the various nations, and
  • avoid long-term cumulative surpluses and long-term cumulative deficits.

*Superphysics Note: In Pantrynomics, there is no International Clearing so no such control is needed. However, coordination and regular negotiations should be expected.

This would have far-reaching effects also on purely internal policies in the different countries. Internal monetary policies, for instance, exert a strong effect on external trade. A proposal to subject them to international control would appear wholly Utopian. Thus, each nation should be free to do internally whatever it pleases:

  • to aim at full employment with all its might
  • to distribute its national income according to its own principles or lack of principles
  • to control foreign exchange transactions or to leave them uncontrolled, etc.

Its responsibility to the rest of the world should end when it has balanced its Clearing Fund accounts. The primary responsibility should rest on the surplus countries to spend as much as they have earned. A secondary responsibility should rest on the deficit countries to make available, at the right prices, etc., a sufficient volume of goods so that all cash obligations can be discharged in kind.

If an adjustment of the rates of exchange will discharge these responsibilities, the International Clearing Office should seek to arrange it. It is the responsible international agency,

3. Long-term Devaluation

In some cases, the degree of devaluation necessary for “balance” might endanger the vital interests of the country in question.

International loans might then be considered, but they have been dealt with above. With or without the help of loans, the country would have to reorganise its industry. It would often mean a change from:

  • home production to exports, or
  • from one kind of export goods to another, or
  • else a curtailment of its purchases.

But a reorganisation within the deficit country alone might not solve the problem. The surplus countries have an equal duty to reorganise so that they can take more goods if more are offered. In such cases, it might be unavoidable to adopt Bilateralism.

  • The exporting country that changes its production structure to export more must know the requirements of the market it is hoping to meet
  • An importing country that creates internal changes to add import requirements must know its sources of supply.

Adjustments of this kind are difficult to effect, and even more difficult to enforce. But these difficulties are not peculiar to Pool Clearing but are inherent in any attempt at international economic cooperation. It is often a matter merely of “Economic Intelligence”, of:

  • the spread of reliable knowledge*, and
  • the compilation of reliable statistics of productive capacities and human needs

*Superphysics Note: In Pantrynomics, this is where Indicators comes in

The right direction might be attained by the need for balance, together with a system that makes surpluses unattractive. The great cyclical waves of unemployment was the greatest single factor of disruption in the past. No system is likely to endure unless such waves can be avoided.

Pool Clearing Versus Other Systems

Compared to free international convertibility of currencies, Pool Clearing offers at least one outstanding advantage: its inner mechanism tends to overcome temporary disequilibrium situations in international exchange by expansion instead of restriction. The buyer is given the first move in the game, on the self-evident theory:

  • that one country’s imports are another country’s exports, and
  • that supply will largely take care of itself if only demand can be liberated.

Thus, the main burden of adjustment is placed on the surplus countries. The system makes them spend their surpluses. This would enable the deficit countries to get rid of their deficits without restricting their purchases. The overdraft facilities for each country expresses the determination to give the buyer the benefit of the doubt, and a means of getting international trade started again after the war, in spite of the shortage of international cash.

This inner expansionist force of the system is its most important feature.

There are other ways to protect countries from the speculative capital movements which this system brings about. The medium-term stability of exchange rates is the minimum degree of international cooperation needed in this field*.

*Superphysics Note: In Pantrynomics, this is solved by the grain index and by banning currency trafficking.

The same applies to the fact that Pool Clearing would make the international payments position of each country “transparent” by summing up its vital aspect in one figure, the debit or credit balance of the National Clearing Fund.

All this can be attained in many ways, not necessarily through Pool Clearing. But can we get this expansionist element into the international system by other means? Is this element something worth striving for?

Only by considering the available alternatives can we decide whether it will be worth it to establish such a system and whether the new risks involved can prudently be taken. At least two alternatives are clearly visible:

  1. A continuation of the pre-war trend.

This split up the world’s trading system into innumerable uncoordinated bilateral systems. This is absurd

  1. A continuation of the war-time trend

It aimed at the formation of regional economic blocs with some eventual form of multilateral clearing

Economic regionalism might be considered superior to the anarchy of rigid Bilateralism. But it surely cannot be the last word in post-war economic organisation. The above attempts to show just one way of driving a wedge into the solid block of resistance against economic planning on a world-scale.

Other ways exist. They should be fully described and discussed. Some world-embracing scheme, conceived with realism and daring, must be developed to meet the challenge of Bilateralism and Economic Regionalism. Such a scheme should above all have an inherent tendency towards expansion.


  1. Superphysics note: In Pantrynomics, this is called a resource credit ↩︎