This is the simplified version of EF Schumacher's Multilateral Clearing which was used by Keynes for his International Clearing Union and Bancor  proposal in Bretton Woods, which were not accepted as they would regulate world trade. We build on Keynes' ideas and merge them with those of Adam Smith to create a social multilateral free trade system which is based on gold or grains  grains, as part of social resource allocation system.

Schumacher's Simplified Multilateral Clearing

There are advantages in settling international payments for goods and services by way of Clearing.

It is easy to organise a clearing of this sort to cover the trade between any two countries.

A strict bilateral trading system has disadvantages.

The question then arises: Can we have multilateral clearing?

Assume that there is only the US, Britain and Poland

Multilateral clearing implies that in this case Britain should be “out of it”

Multilateral clearing exists in Europe.

How can multilateral clearing be achieved without the application of force?

Schumacher's Pool Clearing with Keynes' Bancor

SORA Pool Clearing can implement the original Pool Clearing or a perfected version without bancor and currencies

Footnote: This paragraph merely states the theoretical principle of Pool Clearing.

Assume this goes on for 12 months and each Fund has 3 outcomes:

  1. Deficit countries will have excess local currency from importers
    • Deficit countries will spend the money buying Tbills.
  2. Surplus countries will be short of local currency for exporters
    • Surplus countries will sell Tbills to get cash.
  3. Balanced countries will be in same position as 12 months before

What would be the position of ownership of the deficit countries?

But what if there are more than three countries?

They belong to whom?

* Translator's Note: The balances lose their identity because currency destroys the traceability. SORA uses agreements to maintain the identity and traceability to be able to disentangle world trade

The pooling of balances arises automatically out of the system's mechanism.

* Translator's Note: In the SORA system, this is the job of ISAIAH.The main difference is that Schumacher's system 'sells' the idle cash to the money market. In SORA, the idle cash stays idle and does not earn interest because its only purpose is to circulate world trade. This removes the need for an International Clearing Office and International Pool, as well as the costs associated with it.

Instead, idle cash in net-importer-countries are emitted back to the economy through foreign tourists coming in, and the outsourcing or export of services.

The International Clearing Office requires no finance of its own.

It would be of no economic significance if a new international currency were created *.

* Translator's Note: Here, we agree with Schumacher and disregard any new currency like the Bancor

The Clearing Funds of surplus countries become indebted to their internal money markets and acquire an equivalent share in the Pool, both their debt and their share in the Pool being equal to their trade surplus.

This system is fully multilateral.

They have the same technical effect.

Under Pool Clearing, these differential stimuli do not exist.

This is a great advantage, because:

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

Under bilateral clearings, each country has free access to the trade and raw materials of those other countries which are its customers.

How would Pool Clearing affect those more fundamental real factors?

Whenever a National Clearing Fund receives payment from a resident at home who wishes to discharge a debt abroad:

In this way, each country gives to each other country an overdraft facility for foreign payments.

* In SORA, funds are seeded by giving the importing country free surplus goods of productive exporting countries.

How should these facilities be quantitatively determined?

  1. Each country might let its National Clearing Fund to run into debt with the internal money market up to a specified amount.
    • After that amount has been reached, exporters would receive payment only to the extent that means of payment have been made available by importers.
  2. Or one might approach the problem from the other side: not from the angle of the granter of the overdraft, but from that of the recipient.
    • Each country would be given a certain maximum limit beyond which the cash balance in its National Clearing Fund would not be allowed to rise.
    • After that amount had been reached, the Clearing Funds of the world would take no further notice of notifications coming from the Clearing Fund of the “overdrawn” deficit country.
      • They would refuse to make any further payments to their home exporters for goods delivered to that country.

These two methods are the same in the sense that stop (or ration) deliveries to the overdrawn country.

The first method of limitation makes it quite clear to each participant country what is its maximum stake in the Pool.

The actual determination of these upper limits is not difficult

It is not suggested that there should he a new overdraft every year.

Assume, then, that appropriate limits have been fixed for the deficit any one country will be allowed to incur, and the system is put into operation.

What forces operate within the system to facilitate this task?

As opposed to a bilateral set-up, Pool Clearing gives to each country the fullest opportunities to avoid becoming a surplus country: it can allow its importers to buy freely anywhere in the world, without regard to bilateral trade balances.

Such failures can occur.

* Pool clearing can solve stagnation by letting countries export their way out of it.

Under Pool Clearing a similar trend would undoubtedly assert itself, if the participating states failed to achieve a constant high level of employment at home.

Any discouragement of surpluses might be thought to lead nations to limit their exports rather than increase their imports.

The aim must be to achieve balance in the trade of every nation.5

Pool Clearing would exert a considerable influence on the surplus countries to try to avoid all the risks in holding a share in the Pool through measures that would increase the activities of their importers.

In a situation of this kind there are, roughly speaking, three ways of escape that might recommend themselves:

  1. The deficit country could be given a loan.
    • This is always the easiest, though not always the most satisfactory way out.
    • In the case of “backward areas” that stand in need of industrialisation, in all cases of genuine economic development, loans should be resorted to.
    • But an attempt should be made to distinguish such cases clearly from others where the urge to borrow and the urge to lend arise merely out of the desire of creditor and debtor country alike to postpone the carrying out of necessary adjustments in their respective structures of production.
    • Balance should be the watchword.
    • International loans, which make possible a (justifiable) long-term lack of balance, should be treated as 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. The deficit country's currency could devaluate.
  3. Some fundamental rearrangements of the internal structure of production of some of the countries concerned might be called for.

How, then, could the “exception”, i.e. capital movements for the purpose of industrialising backward areas, be worked into the system of Pool Clearing?

There are two ways to handle this problem.

  1. (a) 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”.
      • 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.
  2. (b) 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.

Translator's note: In SORA, this is called a resource credit

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

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

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

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

Can such an international agreement on exchange rates be obtained?

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.

Our choice in this matter is not very wide.

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

This would have far-reaching effects also on purely internal policies in the different countries.

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

Adjustments of this kind are admittedly difficult to effect, and even more difficult to enforce.

At the start of this essay, we accepted that certain advantages could be gained by employing the clearing principle for international trade.

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

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.

Economic regionalism might be considered superior to the anarchy of rigid Bilateralism.

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