Regional clearing systems : From the European payments union to current initiatives confronting dollar dominance

The International Clearing Union proposed by Keynes at Bretton Woods was designed not only to avoid using a national currency as an international means of payment and reserve asset, but also to provide a source of funding for temporary balance of trade disequilibria. Moreover, the proposal for collective commodity management would have provided liquidity to the international currency by ensuring its convertibility in a basket of foodstuffs and raw materials. The ICU proposal was unsuccessful but experienced a successful regional application in Europe in the 1950s with the European Payments Union. Since the early 1960s, the regional EPU solution has attracted interest outside Europe. Today, as emerging economies show a growing political interest in reducing their dependence on the US dollar, the issue of regional clearing regains attention. The twin objectives of supporting regional trade growth and reducing exchange rate risk against the dollar are driving solutions based on multilateral payment technologies. This chapter starts by analysing the structural features of Keynes's Clearing Union proposal and discussing their relevance for rethinking and reshaping the international monetary system today (section 1) and it then illustrates the regional application of those features in the EPU (section 2). Finally, it analyses various regional payment systems that are currently being proposed or implemented, investigating how they may reduce reliance on the US dollar as a means for international settlement and how they may be understood (and perhaps further enhanced) in the light of the principles of multilateral clearing (section 3).