Publications on Clearing union
Another Bretton Woods Reform Moment
Public Policy Brief No. 154, 2021 | February 2021
Let Us Look Seriously at the Clearing UnionThis policy brief explores a route to remaking the international financial system that would avoid the contradictions inherent in some of the prevailing reform proposals currently under discussion. Senior Scholar Jan Kregel argues that the willingness of central banks to consider electronic currency provides an opening to reconsider a truly innovative reform of the international financial system, and one that is more appropriate to a digital monetary world: John Maynard Keynes’s original clearing union proposal.
Kregel investigates whether such a clearing system could be built up from an already-existing initiative that has emerged in the private sector. He analyzes the operations of a private, cross-border payment system that could serve as a real-world blueprint for a more politically palatable equivalent of Keynes’s international clearing union.Download:Associated Programs:Author(s):Jan Kregel
Globalization, Nationalism, and Clearing Systems
Public Policy Brief No. 147, 2019 | March 2019As global market integration collides with growing demands for national political sovereignty, Senior Scholar Jan Kregel contrasts two diametrically opposed approaches to managing the tensions between international financial coordination and national autonomy. The first, a road not taken, is John Maynard Keynes’s proposal to reform the postwar international financial system. The second is the approach taken in the establishment of the eurozone and the development of its settlement and payment system. Analysis of Keynes’s clearing union proposal and its underlying theoretical approach highlights the flaws of the current eurozone setup.Download:Associated Programs:Author(s):Jan Kregel
A Two-Tier Eurozone or a Euro of Regions?
Public Policy Brief No. 144, 2017 | September 2017
A Radical Proposal Based on Keynes’s Clearing UnionIn light of the problems besetting the eurozone, this policy brief examines the contributions of John Maynard Keynes and Richard Kahn to early debates over the design of the postwar international financial system. Their critical engagement with the early policy challenges associated with managing international settlements offers a perspective from which to analyze the flaws in the current euro-based financial system, and Keynes’s clearing union proposal offers a template for a better approach. A system of regional federations employing a clearing system in which members either retained their own currency or used a common currency as a unit of account in registering debits and credits for settlement purposes would preserve domestic policy independence and retain regional diversity.
Download:Associated Programs:Author(s):Jan Kregel
Going Forward from B to A?
Working Paper No. 866 | May 2016
Proposals for the Eurozone Crisis
After reviewing the main determinants of the current eurozone crisis, this paper discusses the feasibility of introducing fiscal currencies as a way to restore fiscal space in peripheral countries, like Greece, that have so far adopted austerity measures in order to abide by their commitments to eurozone institutions and the International Monetary Fund. We show that the introduction of fiscal currencies would speed up the recovery, without violating the rules of eurozone treaties. At the same time, these processes could help transition the euro from its current status as the single currency to the status of “common clearing currency,” along the lines proposed by John Maynard Keynes at Bretton Woods as a system of international monetary payments. Eurozone countries could therefore move from “Plan B,” aimed at addressing member-state domestic problems, to a “Plan A” for a better European monetary system.Download:Associated Programs:Author(s):Massimo Amato Luca Fantacci Dimitri B. Papadimitriou Gennaro Zezza
Can Reform of the International Financial Architecture Support Emerging Markets?
One-Pager No. 48 | February 2015The developed world’s policy response to the recent financial crisis has produced complaints from Brazil of “currency wars” and calls from India for increased policy coordination and cooperation. Chinese officials have echoed the “exorbitant privilege” noted by de Gaulle in the 1960s, and Russia has joined China as a proponent of replacing the dollar with Special Drawing Rights. However, none of the proposed remedies are adequate to achieve the emerging market economies’ objective of joining the ranks of industrialized, developed countries.Download:Associated Program:Author(s):Jan Kregel
Emerging Market Economies and the Reform of the International Financial Architecture
Public Policy Brief No. 139, 2015 | February 2015
Back to the FutureEmerging market economies are taking an ill-targeted and far too limited approach to addressing their ongoing problems with the international financial system, according to Senior Scholar Jan Kregel. In this policy brief, he explains why only a wholesale reform of the international financial architecture can adequately address these countries’ concerns. As a blueprint for reform, Kregel recommends a radical proposal advanced in the 1940s, most notably by John Maynard Keynes. Keynes was among those who were developing proposals for shaping the international financial system in the immediate postwar period. His clearing union plan, itself inspired by Hjalmar Schacht’s system of bilateral clearing agreements, would have effectively eliminated the need for an international reserve currency. Under Keynes’s clearing union, trade and other international payments would be automatically facilitated through a global clearinghouse, using debits and credits denominated in a notional unit of account. The unit of account would have a fixed conversion rate to national currencies and could not be bought, sold, or traded—meaning no market for foreign currency would be required. Clearinghouse credits could only be used to offset debits by buying imports, and if not used within a specified period of time, the credits would be extinguished, giving export surplus countries an incentive to spend them. As Kregel points out, this would help support global demand and enable a shared adjustment burden. Though Keynes’s proposal was not specifically designed for emerging market economies, Kregel recommends combining this plan with current ideas for regionally governed institutions—to create, in other words, “regional clearing unions,” building on existing swaps arrangements. Under such a system, emerging market economies would be able to pursue their development needs without reliance on the prevailing international financial architecture, in which their concerns are, at best, diluted.Download:Associated Program:Author(s):Jan Kregel
Emerging Markets and the International Financial Architecture
Working Paper No. 833 | February 2015
A Blueprint for ReformIf emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes’s “clearing union” as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches.
Keynes’s proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally—credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.Download:Associated Program:Author(s):Jan Kregel