AT THE SEMINAR on Financial Aspects of Trade Expansion held. in Bangkok in August 1967 and sponsored jointly by the UN Economic Commission for Asia and the Far East (ECAFE) and the UN Office of Technical Cooperation, experts from various countries of the ECAFE region discussed alternative schemes of clearing and payments arrangements for possible implementation on a regional or subregional basis. One of the recommendations of the Seminar was “. . . that a study of the existing international banking and credit facilities available to the region be undertaken, in cooperation with IMF, with a view to evaluating whether they adequately served the current and potential trade needs of the region.”1
The present paper is a slightly amended version of a report prepared at the request of the ECAFE Secretariat in pursuance of this recommendation.
To obtain the necessary information a questionnaire was circulated to Fund member countries of the region;2 in addition, a number of them were visited, and discussions were held with officials of central banks, interested government ministries, commercial banks, and trade organizations. Meetings were also held with banks in New York and London that carry on a significant business in ECAFE countries. Particular attention was given to obtaining information on those aspects of the existing methods of settlement that are likely to have a bearing on the issue of a clearing arrangement in the region. As regards international credit facilities, emphasis was laid on facilities available to the commercial banks and traders for financing trade rather than facilities available to the authorities for financing balance of payments deficits.
Section I brings together some background information on the importance of intraregional trade and payments, the exchange systems of the countries concerned, and banking relationships within the region. Sections II and III describe various aspects of existing international banking and credit arrangements for the region. These sections are based on the replies to the questionnaire and information obtained in the field.
Section IV summarizes the important features of the existing system of settlement and trade financing described in the preceding sections, and examines the usefulness of a clearing arrangement within the ECAFE region.
I. Some Economic and Institutional Features of the ECAFE Region
Before the international banking and credit facilities available to countries of the ECAFE region are examined in detail, a brief background description of a number of economic and institutional features of the region is presented.
Importance of intraregional trade and payments
Balance of payments statistics of the ECAFE countries are not available in a form that would permit the calculation of intraregional payments for both trade and nontrade transactions. As far as nontrade transactions are concerned, there is reason to believe that the intraregional proportion is fairly low. Payments for important current items, such as freight and insurance, are probably for the most part to countries outside the region. The same is also likely to be true for most capital account transactions.
Table 1 shows the intraregional trade of the ECAFE countries and compares it with their total trade. Wide variations in the importance of intraregional trade for different countries are apparent. At one extreme is Nepal with an intraregional, mainly Indian, component of both exports and imports of over 85 per cent. On the other hand, for both India and Pakistan less than one fourth of either exports or imports represents intraregional trade. However, it is clear from the figures that for most countries intraregional trade is a large component of the total. For 12 of the 23 countries listed it represents over 30 per cent of both exports and imports. On an over-all basis, intraregional exports and intraregional imports both constitute slightly more than 30 per cent of the total exports and imports of the countries of the region.
|Exports f.o.b.||Imports c.i.f.|
|Country||To ECAFE region||Total||Regional exports as percentage of total||From ECAFE region||Total||Regional imports as percentage of total|
|(million U.S. dollars)||(million U.S. dollars)|
The trade of these countries may to some extent be understated, as the figures used are compiled from derivative data, i.e., the export totals for these countries are assembled from the imports from them reported by other countries, while the import totals for these countries are assembled from the exports to them reported by other countries. Trade among these 5 countries is not covered.
The trade of these countries may to some extent be understated, as the figures used are compiled from derivative data, i.e., the export totals for these countries are assembled from the imports from them reported by other countries, while the import totals for these countries are assembled from the exports to them reported by other countries. Trade among these 5 countries is not covered.
As might be expected in so widespread and diverse a group of countries, wide variations exist in the extent of trade between particular countries. Many of the countries have little or no trade with each other. Afghanistan and Nepal, for instance, trade little outside the western part of the region, while the intraregional trade of countries such as the Philippines and Korea is heavily concentrated on Japan. Burma and Thailand, on the other hand, export mainly to food-importing countries such as Hong Kong, India, Japan, Malaysia, and Singapore. The trade of some other countries exhibits a broader spread throughout the region. Japan stands out in this regard, both exporting to and importing from most countries of the region on a considerable scale.
Exchange systems of the ECAFE countries
This section does not purport to give a full description of the exchange systems of the countries of the ECAFE region but describes briefly those aspects that are relevant to an understanding of the process of making settlements within the region. The aspects that will be considered are the exchange rate systems, the extent of bilateral payments agreements, and prescription of currency requirements.
Exchange rate systems
For the most part, the countries of the ECAFE region at the present time have unified exchange systems involving a fixed rate. A large group of countries including Australia, Burma, Hong Kong, India, Iran, Japan, Malaysia, Nepal, New Zealand, the Philippines, Singapore, and Thailand have par values agreed with the International Monetary Fund and conduct all transactions on the basis of parity rates. The Republic of China, while not having an agreed par value, has a fixed unitary rate. Korea has a unitary rate system, but the rate is allowed to fluctuate.
The remaining Fund member countries of the region have multiple rate systems. In Laos the official rate applies to imports of aid goods, government requirements, certain percentages of the proceeds of specified exports, and specified invisibles. All other transactions take place in an official free market at a substantially more depreciated rate. In Ceylon the official rate applies to the country’s main exports and to certain imports as well as to official capital transfers. Other receipts and payments are channeled through a certificate market at a more depreciated exchange rate. Similarly in Pakistan, while the official rate applies to some transactions, other effective rates arise from the negotiation of bonus vouchers which certain exporters and certain other recipients of exchange may sell at freely determined rates to importers who need them to obtain import licenses for various commodities or to obtain exchange for certain invisibles. In Afghanistan the official rate applies to the proceeds of exports of karakul, wool, and cotton and to 30 per cent of foreign exchange receipts of the Government for the financing of the salaries in afghanis of foreign experts. The official selling rate applies to foreign exchange payments by the Government. All other transactions take place at free market rates through either the banks or the bazaar. In Indonesia there are two exchange markets in both of which the exchange rates fluctuate. The principal market is the Bonus Export market through which the greater portion of trade transactions is channeled. The other exchange market (the Djakarta Bourse market) is intended primarily for receipts and payments in respect of invisibles and for a portion of private imports. Two additional buying rates result from a 10 per cent exchange tax on all exports other than petroleum and from an additional exchange tax of 5 per cent levied on eight major export commodities (excluding petroleum). Viet-Nam also has a number of effective rates. The official rate is VN$80 per US$1, but this is supplemented by a Consolidation Tax of VN$38 per US$1 on sales of foreign exchange3 and by a Consolidation Premium of the same amount on purchases of foreign exchange. In addition, rubber exports are subject to an exchange tax of 1 per cent and handicraft exports to an exchange subsidy of 75 per cent. A further range of selling rates arises from the application of the equalization tax (taxe de péréquation), at rates ranging from VN$10 to VN$215 per US$1, on certain imports.
Bilateral payments agreements
Although a number of countries of the ECAFE region have bilateral payments agreements with countries outside the region, especially with Eastern European countries, little of the trade among countries of the region is conducted under bilateral payments agreements.
Afghanistan and India have an agreement providing for the settlement through a bilateral account of trade in certain commodities. There is also a bilateral agreement between Nepal and Pakistan, but the value of transactions settled through the accounts is reportedly nominal. Indonesia has an agreement with the Philippines which is currently inactive and also maintains bilateral accounts with Pakistan pending the settlement of balances outstanding at the time of termination of its agreement with that country.
Pakistan and Iran together with Turkey have recently established a special payments facility under their Regional Cooperation and Development Treaty. According to the terms of the arrangement, payments among these countries, with some exceptions,4 are settled through clearing accounts maintained by the respective central banks in U.S. dollars. Regular compensations take place once a year with 50 per cent of the balance due being settled in convertible exchange within 30 days and the remaining 50 per cent being carried forward to the following accounting period. Amounts in excess of the credit limits of US$2 million, which each member has undertaken to extend to each of the other participants, have to be settled in convertible currencies within 30 days.
Prescription of currency requirements
There are widespread variations among the countries of the region as regards the currencies authorized for use in making international settlements. Where there are bilateral payments agreements, payments are effected through the designated accounts. However, as we have seen, this is of little relevance to settlements in the ECAFE region where very few bilateral payments agreements are in operation among the countries. In general, countries are not greatly concerned about the currency in which their international payments are made, and, accordingly, prescription of currency requirements on the payments side tend to be broad.
Typically, those countries of the region that are members of the Sterling Area allow payments among one another to be made in sterling, in another Sterling Area currency, or in their own currency through the account of a bank domiciled in any other country of the Sterling Area with a bank in their country. For payments to countries outside the Sterling Area the choice is between crediting sterling to an external account in the United Kingdom or using the currency of the paying country through the account of a bank domiciled in the recipient country or any non-Sterling Area currency. The non-Sterling Area countries of the ECAFE region in general do not impose any restrictions on the choice of currency for making payments.
Countries naturally tend to be more concerned about the currency composition of their receipts, and hence it is primarily on the receipts side that limitations on the acceptability of certain currencies arise. Again it is convenient to consider the Sterling Area members of ECAFE as a group. As on the payments side, they regard as acceptable in their receipts from other Sterling Area countries sterling, another Sterling Area currency, or local currency through the account of a bank domiciled in any other country in the Sterling Area with a bank in their country. In their receipts from non-Sterling Area countries they generally accept sterling from an external account in the United Kingdom, local currency from an appropriate nonresident account, or any non-Sterling Area currency that is freely exchangeable for external account sterling.
Laos and Thailand do not have any prescription of currency requirements for receipts. However, in the other non-Sterling Area countries of the region there are considerable variations regarding the currencies that are acceptable for receipt. Some prescribe that receipts must be in local currency from an appropriate nonresident account or in convertible currencies. Other countries, e.g., China, Japan, and Korea, list the currencies in which receipts may be accepted. Invariably such lists include Canadian and U.S. dollars and sterling and, to varying extents, the main European currencies. The only regional currencies included, apart from domestic currencies, are Australian dollars by Japan, Australian, Hong Kong, and Malaysian dollars by China and Korea, Japanese yen by Nepal, and Indian rupees by Afghanistan, Iran, and Nepal. With the exception of Laos and Thailand, it would appear that the prescription of currency requirements of the Sterling Area members of ECAFE permit a somewhat wider use of regional currencies than do those of the non-Sterling Area members of the region.
Network of banking relationships
Normally each party to an international transaction will want to deal in its own domestic currency. To enable this to be done smoothly, banks in each country usually maintain relationships both with banks in other countries with which settlements are being made and with banks in the major financial centers of the world, primarily London and New York.
As far as the ECAFE region is concerned, some of the banks in different countries are connected through branch relationships. The most widespread of these relationships involve foreign banks, both British and U.S., several of which are represented in a number of the countries. For the most part the branch networks of domestic banks do not extend to other countries, but there are a few domestic banks, for example, in India, Japan, and Australia, with branches in a limited number of other countries of the region. A number of domestic banks also have branches in the major financial centers, e.g., the London office of domestic banks of some of the Sterling Area countries. On the whole, however, the extent of branch networks is fairly limited, especially when compared with the much larger number of correspondent relationships that exist among banks in the region.5 The lack of more extensive branch networks cannot, however, be regarded as a deficiency in the intraregional payments mechanism, as, for this purpose, correspondent relationships among banks serve equally well.
Some idea of the extent of correspondent relationships is given by the figures reported by several countries. India reported that its commercial banks had no less than 1,735 such relationships with other banks in the ECAFE region; for Korea the corresponding figure was 334. Other countries, although not providing figures, made it clear that the correspondent networks maintained by their banks with banks elsewhere in the region were both comprehensive and adequate. Correspondent relationships are maintained also with extraregional banks, including those in London and New York. For some countries, relationships with banks in San Francisco are also important.
The main purpose of correspondent relationships is to facilitate payments among the various countries and, accordingly, the agreements among the correspondent banks normally provide for a full range of reciprocal dealings, such as the issuing of telegraphic or mail transfers, the drawing of drafts on each other, the issuing of letters of credit up to agreed limits, and the forwarding of bills for collection to each other. Correspondent relationships also serve as a channel for the exchange of trade information, e.g., in providing confidential reports on exporters and importers. A number of banks stated that members of their staffs travel regularly to other regional countries, calling on their correspondent banks and investigating at firsthand local conditions and trade opportunities.
An important aspect of correspondent relationships among banks is the maintaining of accounts with the other partners to enable payments to be effected as requested by the customer. The size of these accounts, or working balances as they are usually referred to, depends on the scale of the banks’ international payments but may also be influenced by official regulations covering the holding of foreign exchange by commercial banks. Among the ECAFE countries, regulations designed to limit these holdings to the banks’ immediate needs for working balances are common, being reported by Australia, Burma, Ceylon, China, India, Korea, Nepal, New Zealand, Pakistan, and Viet-Nam. Even among the countries where no formal limitations exist, several reported that their commercial banks tended to limit foreign currency holdings more or less to their working balance requirements.
It is apparent from the comments of banks in the region that these working balances are not distributed widely but are held in accounts with a small minority of correspondents, mainly in sterling and U.S. dollars with correspondents in London and New York. One country, for instance, reported working balances held by its commercial banks on current account with extraregional correspondents at US$14.3 million and holdings with banks in the region at US$0.5 million. Such a distribution is probably broadly indicative of the position of most other countries of the region. One country reported that all of its banks’ working balances were held outside the region, while several others said that holdings of regional currencies were confined to small balances with correspondent banks in 2 or 3 countries. Even the few countries whose banks maintain balances in most or all of the countries of the region indicated that the amounts involved were small. Any accumulation of balances in these accounts tended to be transferred to London or New York. On the other hand, any sudden demand for a regional currency in excess of the balance held with the particular correspondent could be met by funding the account through the sale of sterling or dollars for the local currency. The fact that so little is held in regional currencies is first and foremost a reflection of a general lack of demand from traders for use of these currencies, an aspect that will be considered further in the following section. Another factor mentioned frequently to explain the lack of interest in holding regional currencies was the exchange risk that banks feel is involved. Conversely, the practice of holding most or all working balances in London and New York was explained mainly in terms of the much heavier demand for sterling and U.S. dollars as trading currencies.
It should be apparent from the foregoing that while correspondent or branch relationships with other banks in the region and those with banks in London and New York both play important parts in the intraregional payments process their roles are somewhat different. In a sense they may be said to complement each other. The former, while clearly the more numerous, do not generally involve the maintenance of accounts but serve the important purpose of enabling payment orders to be made direct from one country to the other. On the other hand, correspondent relationships with banks in London and New York normally involve the maintenance of working balances, and it is through these accounts that intraregional payments in sterling and dollars are made. For at least some countries of the ECAFE region, banks in London and New York also serve as important sources of trade financing, as described in a later section.
II. Currencies Used in Intraregional Settlements
This section is concerned with the question of currency composition of payments among the countries of the ECAFE region.6 Apart from considering the present shares as well as any trends in the use of different currencies, both regional and nonregional, it also deals with the various considerations that the countries themselves have reported as being responsible for their particular pattern of currency use.
Relative importance and trends in use of different currencies
Available information relating to the currency composition of countries’ intraregional settlements varied. Some countries were able to provide detailed statistics, while others had to rely on general impressions. Table 2 sets out the position for 6 countries that were able to supply fairly up-to-date and detailed statistics on a reasonably uniform basis.
|Burma, 1967||India, 1966/671||Japan, 19662||New Zealand, 1967/683||Thailand, 19672||Viet-Nam, 1967|
|Other regional currencies||1||3||1||11||2||2||494||695||11||8||—||—|
Trade transactions only.
Year ended June 30.
Comprises both Australian dollars and New Zealand dollars, separate figures for which are not available.
Almost entirely Australian dollars.
Trade transactions only.
Year ended June 30.
Comprises both Australian dollars and New Zealand dollars, separate figures for which are not available.
Almost entirely Australian dollars.
It is apparent from the information received that sterling and U.S. dollars are the predominant currencies used in settlements among countries of the region. For a number of the countries—Burma, Iran, Japan, Korea,7 the Philippines, Thailand, and Viet-Nam—sterling and U.S. dollars are overwhelmingly important in the sense of accounting for 90 per cent or more of intraregional receipts and payments. For another group of countries—Australia, India, Pakistan, and Singapore—the reserve currencies play a less exclusive role but nevertheless account for at least 75 per cent of settlements. Four other countries (China, Hong Kong, Indonesia, and Laos), while not able to give any statistics, reported sterling and/or U.S. dollars as the predominant currencies for intraregional settlements. For these various countries the role of the currencies of members of the region is thus at most a marginal one. Some of them did, however, report making some use of such currencies as Australian, Hong Kong, Malaysian, and Singapore dollars.
Ceylon, Malaysia, and New Zealand constitute another group, in that substantial use is made not only of sterling and/or U.S. dollars but also of regional currencies. About half of Ceylon’s intraregional settlements are in sterling, the remainder being mainly in Indian rupees (in respect of transactions with India) and to a limited extent in other regional currencies. In Malaysia, sterling and U.S. dollars are used for about two thirds of settlements and various regional currencies—Malaysian, Singapore, Hong Kong, and Australian dollars and Indian rupees—for the rest. The relatively low percentage in sterling and U.S. dollars for New Zealand (50 per cent for receipts and 30 per cent for payments) is due to the importance of its transactions with Australia, which are settled mainly in either Australian or New Zealand dollars. Australian exports to New Zealand are normally invoiced and paid in Australian dollars, while it is the usual practice for New Zealand exports to Australia to be invoiced and paid in New Zealand currency; the resulting net balance is settled between respective banks in sterling at either weekly or monthly intervals.
The countries attributing the smallest role to sterling and U.S. dollars were Afghanistan and Nepal. Afghanistan’s major trading partner in the region is India, and in terms of their bilateral payments agreement the bulk of settlements between the two countries is made through a special account in Indian rupees. Afghanistan also makes some use of Pakistan rupees and Iranian rials in its trade with these two countries. For Nepal, the Indian rupee is the predominant currency; more than 85 per cent of Nepal’s trade is with India, and this is settled in rupees whether through the banking system or outside it, as in their substantial border trade.
Which of the two currencies, sterling or U.S. dollars, is the more important in the ECAFE region is not readily apparent. Their relative importance varies considerably depending largely on whether the country is a Sterling Area member or not. For instance, in Sterling Area countries such as India, Ceylon, New Zealand, and Malaysia the use of sterling tends to outweigh that of U.S. dollars in the ratio of about 4 to 1. Hong Kong appears to be an exception among the Sterling Area countries in that there is reportedly extensive use of U.S. dollars. In the non-Sterling Area countries U.S. dollars are clearly the more important, but beyond this it is difficult to generalize. Countries such as Korea, the Philippines, and Viet-Nam report almost exclusive use of the U.S. dollar, while Japan and Thailand also use sterling extensively. The Thai figures show quite a marked difference in the relative positions of the two currencies according to whether it is the receipts side or the payments side, U.S. dollars accounting for 81 per cent of payments and sterling for only 8 per cent whereas their shares of receipts (47 per cent in U.S. dollars and 42 per cent in sterling) are roughly comparable. This appears to be principally a reflection of the importance of Sterling Area countries such as Malaysia, Singapore, Hong Kong, and India as markets for Thai exports, whereas Thai imports from the region are predominantly from Japan and would for the most part be settled in U.S. dollars. Burma, although no longer a member, still follows the Sterling Area pattern, reporting that sterling accounts for over 80 per cent of intraregional settlements.8
While it is clear that sterling and U.S. dollars are the main trading currencies used by the countries of the ECAFE region in their intraregional settlements, there is some use of other currencies, for the most part only marginal but in a few instances to quite a considerable extent. These other currencies are not to any significant extent extraregional currencies; other than a reference by Laos to its use of French francs, India and Thailand are the only countries that acknowledge any use of outside currencies other than sterling and U.S. dollars for the purposes of intraregional payments. Nor can it be said that any of the currencies of the region serves any general role as a trading currency. In those countries where the use of regional currencies has assumed some importance, such as Afghanistan’s use of Indian and Pakistan rupees, Ceylon’s and Nepal’s use of Indian rupees, New Zealand’s and Australia’s use of their respective currencies, and Malaysia’s and Singapore’s use of each other’s currencies, the currency used is in each instance that of one of the parties to the transaction. Australia reported a tendency for the use of its currency to be more pronounced in payments for invisibles rather than in trade transactions, but there were other countries that were unable to discern any such trend. There were also reports from Ceylon and Thailand that the use of regional currencies was common in payments between affiliated firms in the area, e.g., firms having a family network. The regional currencies that are used most are the Australian, Hong Kong, Malaysian, and Singapore dollars and the Indian rupee. One of these, the Australian dollar, has been convertible in terms of Article VIII of the Articles of Agreement of the International Monetary Fund since July 1965, while Malaysia and Singapore accepted the obligations of Article VIII in November 1968. The only other currency of the region to have Article VIII status is the Japanese yen, but very little use of it was reported.
Settlements under bilateral payments accounts do not play any significant role within the region. India and Afghanistan use such an account to a limited extent, as do Nepal and Pakistan. In addition, Pakistan and Iran settle certain transactions through accounts maintained by their respective central banks in terms of their Regional Cooperation and Development Treaty.9 (The bilateral payments agreement between Indonesia and the Philippines is currently inactive.)
As far as trends in the use of different currencies in intraregional settlements were concerned, about half of the countries reported no perceptible change during the past decade. The changes reported by the remainder related more to the relative degrees of reliance on sterling and U.S. dollars than to trends in use of currencies of the region. The most common response was that use of U.S. dollars as a trading currency had tended to increase with a corresponding decline in the use of sterling.10 Several countries saw this as a longer term trend that had been in evidence throughout the 1960’s; others regarded it as a more recent development that had occurred since the devaluation of sterling, or at most during the past couple of years. Japan felt that its use of sterling relative to other currencies had been declining throughout the 1960’s but that the tendency had become more pronounced during the last year or two. A corresponding increase in the use of the U.S. dollar was attributed both to its stability as an international currency and to the associated credit facilities available from U.S. commercial banks. Commenting on the growing importance of U.S. dollars in its export proceeds from the rest of the region, Thailand noted that it was now the practice for government rice contracts to be denominated in U.S. dollars rather than in sterling; also pertinent was the relative growth of a Japanese market for Thai products.
There were few comments on changes in the use of currencies of the region. For the most part, where a country of the region used a regional currency in trading, this tended to be a long-standing practice. Remarks relating to recent developments were confined to one comment on the declining use of the Indian rupee and several comments on the greater use of the Australian dollar. There was no evidence of any general trend toward increased use of regional currencies nor was any feeling expressed that the role of currencies of the region would increase in the foreseeable future.
Considerations determining choice of currency
In the light of the position as revealed above, the question of what considerations explain the relative importance of different currencies may be formulated in two parts:
(1) What accounts for the general predominance of sterling and U.S. dollars?
(2) Why, in settlements between certain countries, have regional currencies come to assume considerable importance?
As far as the first question is concerned, it is true, as some countries pointed out, that the prescription of currency requirements of individual countries limit to varying extents the range of currencies that are acceptable for settlement purposes. As indicated in Section I, this would rule out the use of some of the currencies of the region. However, in nearly all instances the prescription of currency requirements still leave considerable latitude to traders and banks in the choice of currencies.
The impression that emerges from the responses is that there has developed over the years a tradition of using mainly sterling and U.S. dollars. These currencies are widely accepted and are found to be generally satisfactory to traders, and as long as this situation prevails there is little inducement for traders to shift toward using other untried and relatively unfamiliar currencies. The Sterling Area countries tended to view the predominance of sterling as an outcome of strong historical links and the traditional importance of their trade with the United Kingdom. At least in transactions with other Sterling Area countries of the region, their prescription of currency requirements have no doubt also contributed to the use of sterling.11 As far as non-Sterling Area countries are concerned, U.S. dollars are in most instances the predominant currency, suggesting that where prescription of currency requirements are not a constraint the U.S. dollar rather than sterling tends to be preferred. But it is also noticeable that the countries reporting extensive use of U.S. dollars include those, such as Korea, the Philippines, and Viet-Nam, that are economically oriented toward the United States. The Philippines, for example, stressed its long-standing economic and political ties with the United States, including its traditional dependence on the U.S. market, which has resulted in Philippine traders becoming accustomed to quoting their prices in U.S. dollars and Philippine banks making use of correspondent banks in New York and San Francisco for trade financing and settlement purposes. To some extent, countries also associated their use of sterling and U.S. dollars with the practice of holding the bulk of their foreign exchange reserves in these centers. The fact that world market prices of some commodities are quoted in terms of U.S. dollars or sterling was also mentioned as a reason for the use of these currencies for settlement purposes.
Another consideration to which some countries attributed considerable importance was the availability of forward exchange facilities in sterling and U.S. dollars. What importance should be attributed to this aspect is not clear. In some instances trading firms in effect cover their own position by having both import and export contracts outstanding at the same time. Some other countries reported that their traders made little use of forward exchange facilities and bore the exchange risk themselves. One country estimated that currently the proportion of trade for which forward cover was being taken out would not exceed 30 per cent. There were some suggestions that it tended to be the larger, more sophisticated exporting and importing firms which took out forward cover, and even here practice ranged from those firms that covered themselves as a matter of course to those whose decision was made in the light of their view of the exchange risk at the time of the transaction. Most countries reported, however, that since the sterling devaluation there had been a much greater forward exchange consciousness.
The availability of trade financing facilities through the discounting of bills in the London and New York markets was mentioned by some countries as an important advantage of using sterling and U.S. dollars. Japan, for example, regards this as a very important facility. On the other hand, there are some countries that rely mainly on trade financing provided internally (e.g., through the discounting of export bills with the commercial banks or the central bank) or by their trading partners, and so attribute less importance to the credit f acuities available in London and New York.
Instead of considering the advantages of using sterling and U.S. dollars, the question of choice of currency may alternatively be viewed in terms of the disadvantages of using regional currencies. Where countries viewed the question in these terms the answers were largely the converse of those reported above. In other words, the lack of use of regional currencies reflected the unfamiliarity of traders and banks in using them, doubts about their acceptability to the other party, fears as to their exchange value and convertibility, the difficulty or impossibility of obtaining forward cover in these currencies, and the lack of facilities for trade financing in the region comparable to those available in London and New York.
The second question posed above was why in some instances regional currencies have come to play an important role in settlements between particular countries. The common element in these cases appears to be the close economic and financial ties between the countries that have served to develop familiarity among their banks and traders in the use of one or both of their respective currencies. There is, of course, considerable mutual trade among these countries. Nepal represents an extreme example, as more than 85 per cent of its trade is with India, but the others also trade extensively with each other. For example, India and Pakistan have traditionally been major trading partners of Afghanistan, while Australia is a major source of New Zealand’s imports. A number of other considerations were mentioned by different countries in explaining their departures from the normal practice of using sterling and U.S. dollars. Ceylon, for instance, in commenting on its use of Indian rupees, referred to the legal link that had prevailed between the Ceylon and Indian rupee prior to independence and to the fact that most of the trade with India has been in the hands of Indian nationals resident in Ceylon. The Australian comments placed considerable emphasis on close financial relationships with New Zealand in explaining the long-standing use of Australian and New Zealand dollars in settlements between these two countries. Several Australian banks have wide branch networks in New Zealand, while one New Zealand bank has branches in Australia.
III. Other Aspects of Intraregional Payments and Trade Financing
The previous section examined in some detail the relative importance of different currencies used in intraregional settlements. This section discusses various other aspects of the payments process, such as methods of payment (whether through the banking system or nonbanking channels) and the costs to traders of making intraregional payments, as well as the transit time involved in such payments. Consideration is also given to the main sources of intraregional trade financing, distinguishing, on the one hand, financing obtained within the region in either the exporting or importing country and, on the other hand, that obtained from outside the region, which for all practical purposes means New York or London.
Use of nonbanking channels
International payments are not routed exclusively through banking channels in all countries. Alternatives that can be resorted to include the use of currency notes, intracompany bookkeeping transfers, offsetting by firms engaged in both importing and exporting, and barter deals. It may be useful to consider briefly some of the reasons why traders sometimes use nonbanking channels rather than the banking system. It may simply be a matter of custom or convenience as, for example, in border trade among some countries or where a trader is engaged in both exporting and importing, thus giving rise to the opportunity of offsetting and so avoiding banking charges and rate spreads related to foreign exchange transactions. Alternatively, the use of nonbanking channels may offer a means of avoiding taxation on exports or imports or of avoiding exchange controls. In view of these various possibilities, it scarcely needs adding that use of nonbanking channels can in no sense be regarded as indicative of the adequacy or inadequacy of banking facilities for effecting international payments.
Not surprisingly, countries were unable to supply statistics indicating to what extent nonbanking channels were used; when settlements take place outside the banking system it may often be unknown to the authorities and perhaps in contravention of official regulations. The impression conveyed, however, was that, apart from a few exceptional instances, resort to nonbanking channels occurs on only a fairly minor scale.
A few countries reported some use of currency notes. This was mainly in settlement of border trade, such as that between India and Nepal and some of Thailand’s trade with Laos and Malaysia. Notes were also reported to be of some importance in Laotian border trade with Cambodia and Viet-Nam and in transactions between Malaysia and Singapore. Some use of currency notes by travelers was reported by Hong Kong and Singapore.
Malaysia and Singapore represent something of a special case in that prior to June 1967 they had shared a common currency. Following the introduction of separate currencies on that date, arrangements have been arrived at to facilitate the use of the Malaysian and Singapore currencies in transactions between the two countries. These arrangements provide that banks in each country accept, at par and without charge, notes and coins issued by the currency authorities of the other country and exchange such notes and coins for notes and coins of the country concerned. In turn, each currency authority arranges for repatriation of the notes and coins issued by the other’s authorities and receives at par the equivalent in sterling or some other agreed currency. In terms of subsequent arrangements, the Central Bank of Malaysia has opened an acount in Singapore currency for its use in Singapore with the Accountant-General of Singapore, and the Accountant-General of Singapore has likewise opened an account in Malaysian currency for his use in Malaysia with the Central Bank of Malaysia. The repatriation of notes and coins referred to above is now carried out through these accounts.
Apart from these few instances, there were no indications of substantial use of currency notes in intraregional transactions. Nor were other nonbanking channels thought to be of any importance in most of the countries of the region. This often stems from exchange control requirements that settlements be made through the banking system. Japan, for example, reported that overseas transactions are as a rule required to be settled through the banking system and that such methods of settlement as intracompany bookkeeping transfers and offsetting of export and import accounts within the same trading firm are all subject to approval by the exchange authorities. Similarly, Australia and New Zealand reported little use of nonbanking channels; in both countries payment other than through the banking system requires exchange control approval, which is given only in special cases. In India the only offsetting arrangements are those that occur to a limited extent in transactions with Afghanistan.12 In Thailand, settlement through intracompany bookkeeping transfers is not permitted. Most other countries also said that international payments are required to be made through the banking system.
There were, however, a few countries reporting some use of nonbanking channels other than through the use of currency notes. Malaysia and Singapore, for instance, reported considerable use of intracompany accounts in settlements between each other. Singapore thought that intracompany bookkeeping transfers probably also occurred to some extent in settling with other Sterling Area countries of the region. Malaysia referred to oil companies as one group that settled primarily through bookkeeping transfers, only net amounts owing being remitted through banks. Of all the countries of the region, Afghanistan probably makes relatively the greatest use of nonbanking methods of payments. Its intraregional trade, which is mainly with India and Pakistan, is for the most part handled by large firms that engage in both exporting and importing and are thus in a position to undertake offsetting operations. In trade with Pakistan and also India, to a lesser extent, considerable use was reported of promissory notes (known as barata or hindawi), which do not enter the banking system.
Other methods of payment
While some use is made of nonbanking channels, there is no doubt that the bulk of intraregional payments takes place through the banking systems of the countries concerned. As far as different instruments of payment are concerned, it is clear from the information received that the bill of exchange or draft, which may or may not be drawn under a letter of credit, predominates. Malaysia, New Zealand, and China reported that telegraphic transfers were important methods of settlement within the region, but in general it would appear that this method and also mail transfers and bankers’ drafts are largely confined to payments for invisibles, i.e., services and capital items, and a minority of trade transactions. In the nontrade area a number of countries reported that where large amounts were involved, or where there was some urgency about having the settlement effected promptly, telegraphic transfers were used; otherwise payments tended to be by mail transfers or bankers’ drafts.13
A few countries were able to provide a classification of payments according to the method, but apart from Thailand the figures were on a global rather than an intra-ECAFE basis. These figures are shown in Table 3 and, with the exception of those for Australia, indicate the predominance of the bill of exchange. However, even in Australia it is most likely that the bill of exchange is the main instrument for payments to other countries of the ECAFE region, as nonbill transactions are probably to a large extent payments to suppliers outside the region, e.g., payments for imports of such important items as oil and motor vehicles and components by Australian subsidiaries from their overseas parent companies.14 With one or two exceptions the remaining countries, while not supplying detailed figures, also indicated the predominance of the bill of exchange in their payments. Bills drawn under letter of credit seem to be more common than those that are not. In the Philippines, for example, as the table indicates, bills drawn under letter of credit account for 87 per cent of import payments, a reflection of the official requirement in that country that imports other than certain exempt categories be covered by letters of credit opened on or before the date of shipment. Similar requirements operate in Viet-Nam. In imports, subject to margin requirements. There are also examples of exporters being required to have their exports covered by letter of credit. The Philippines is again a case in point, as there is such a requirement for exports of metals, copra, and coconut oil and for all categories of exports to a few specified countries. In Thailand the requirement that teak and kenaf exports be covered by letter of credit was said to assist in controlling the quality of exports of these products.15
|Drawn under letter of credit||45||53||20||87||90||100|
|Not under letter of credit||50||13||17||13|
Figures for Thailand and Japan cover recent unspecified periods; for the Philippines the figures relate to the period January-March 1968, and for Australia the year ended June 1968. Thai figures cover intraregional payments only, whereas those for other countries cover global transactions. Japanese global figures are considered to be broadly indicative of the regional position, but there is reason to believe that for Australia the relative importance of bill transactions in its intraregional payments is considerably greater than the global figures would suggest.
Figures for Thailand and Japan cover recent unspecified periods; for the Philippines the figures relate to the period January-March 1968, and for Australia the year ended June 1968. Thai figures cover intraregional payments only, whereas those for other countries cover global transactions. Japanese global figures are considered to be broadly indicative of the regional position, but there is reason to believe that for Australia the relative importance of bill transactions in its intraregional payments is considerably greater than the global figures would suggest.
In most instances, however, the method of payment is not the subject of official regulation but is a matter of decision between the exporter and importer. The information obtained indicates that even then the use of the letter of credit is the norm as far as intraregional transactions are concerned and is largely a reflection of exporters’ desires to obtain the added assurance of payment that derives from the guarantee by the bank opening the credit of payment of bills drawn in conformity with the terms of the credit.
An additional motive for having the importer arrange a letter of credit is that it facilitates access to trade financing whether domestic or foreign. Thus, while an exporter may find it difficult or impossible to get his bank to discount (as distinct from handling on a collection basis) a bill not under letter of credit, there will usually be no such problem where the bill is drawn in terms of a letter of credit. In Japan, where term export bills are drawn under irrevocable letters of credit and expressed in designated foreign currencies, the exchange banks may discount the bills for their customers and then, subject to certain conditions, borrow from the Bank of Japan the yen equivalent by presenting the bills to the Bank as collateral. In the absence of a letter of credit this facility is not available unless the bill is insured under Japan’s Export Bill Insurance System. Likewise, in some circumstances the opening of a letter of credit may be a necessary part of the process of obtaining trade financing in the New York or London acceptance markets—for example, where a letter of credit is opened providing for the drawing of a term bill by the exporter on a bank, say, in New York, which accepts the bill thereby making it eligible for rediscounting in the acceptance market.
An alternative method of settlement is the drawing of a bill not under letter of credit. A number of countries reported considerable use of this method, among them Thailand where, as Table 3 indicates, bills not under letter of credit account for 50 per cent of receipts. In such cases it is usual for the exporter’s bank to handle on a collection basis only the bill drawn by the exporter on the importer and to forward it with documents to a correspondent in the importing country for presentation to the importer for acceptance or payment. The documents that are required by the importer to establish title to and obtain possession of the goods will be handed over to him either on acceptance (“documents against acceptance”) or on payment of the bill (“documents against payment”). The main attraction of these methods is the avoidance of the cost of opening the letter of credit. In several countries, e.g., Hong Kong and Singapore, there were reports of increasing resort to “documents against acceptance” and “documents against payment” bases of settlement as trade relations developed and confidence increased among countries of the region.
Costs of intraregional payments
An important aspect of any payments system is the cost involved in making payments. Accordingly, a number of questions were directed to banks in each country concerning the various charges that are currently levied in connection with international payments.
Generally the largest single charge is the interest cost of financing intraregional trade, which may arise in the form of a discount on the negotiation of a term bill or as a straight interest payment on short-term borrowing. This charge cannot really be regarded as a cost of making payments but is rather a financing cost whose level will depend mainly on interest rates in the market in which trade financing is being obtained and not on the channels through which settlement takes place. The charges that may be regarded strictly as costs of effecting payments may be split into two categories. The first is the cost implicit in the fact that banks sell foreign exchange to customers at a higher price than they purchase it from them, i.e., the exchange spread. When a third currency such as sterling or U.S. dollars is being used, a margin has to be borne both by the importer on his purchase of, say, sterling against local currency and by the exporter on the conversion of sterling into his own local currency. The second category consists of the various direct charges that are levied on the customer in connection with intraregional payments whether by banks in the exporting or importing country or by correspondent banks in the major foreign financial centers.
Banks quote a variety of buying and selling rates in their dealings with customers. The rates vary depending on such factors as whether the transaction is on a spot or forward basis and, where bills are involved, on the term of the bill, which determines the interest element in the rate quoted. It is the spot telegraphic transfer buying and selling rates that are regarded as the basic exchange rates and that are most relevant in considering exchange spreads.
As far as the exercise of authority for setting rates is concerned, the position varies considerably among countries. In all instances, however, where par values have been established with the International Monetary Fund, the countries are required, under the Articles of Agreement of the Fund, to maintain their spot exchange rates within a range of 1 per cent above or below the par value of their currency;16 in practice, rates are generally held within a narrower range. At one extreme are those countries where decisions concerning rates are effectively made by the authorities, either by their indicating the rates at which currencies are to be bought and sold by authorized banks or, as in the case of rates in Pakistan for currencies other than sterling, by establishing a formula for the banks to use in determining rates. Normally, however, banks are given some autonomy in fixing rates. One common arrangement, which is in operation in Hong Kong, India, Malaysia, the Philippines, Singapore, and Thailand, is for the countries’ association of banks or of foreign exchange dealers to set the rates; these generally take the form of “best rates,” which member banks agree not to undercut by quoting finer rates to customers. Several of these countries said that in practice their banks’ association consults with the government or central bank in regard to decisions about rates. In New Zealand, for example, where it is required by law that all exchange rates be approved by the Reserve Bank, rates are set by the commercial banks in consultation with the Reserve Bank. In other countries the setting of rates was said to be more a decision of individual banks than a collective decision through an association, e.g., in Japan and Korea and, at least for non-Sterling Area currencies, in Australia. However, both Japan and Australia stated that the various banks tend to quote virtually the same rates. In Australia all the banks use the same procedure in calculating rates on the basis of the latest known rates in the London market.
The replies received indicated that it was the practice of banks to quote uniform rates irrespective of the class of customer or the type of transaction. A few exceptions to this general position were reported, however. Thailand, for example, reported that banks were free to quote more favorable rates to customers for large transactions and to some government agencies, while the Australian banks are permitted to sell foreign exchange at concessional rates for government transactions. Ceylon also reported that in special cases rates may vary to some extent according to the standing of the customer and the size of transaction.
As several countries pointed out, the exchange spread cannot be regarded as a direct measure of the profits earned by banks in exchange dealings. Only to the extent that banks manage to “marry” purchases and sales of particular currencies will the spread measure the amount accruing to the bank. Where banks are faced with having to buy foreign currencies from or sell them to their central bank or in the local interbank market or in world currency markets, they will have to do so at less favorable rates, and so their earnings will be lower than the exchange spread might suggest. It should also be borne in mind, as a number of banks pointed out, that the exchange spread also has to cover the various costs, such as the cost of running a foreign exchange department and the opportunity cost of holding working balances in various foreign currencies, that are inevitably incurred by banks in carrying out the function of dealers in foreign exchange. The spreads for various countries are shown in percentage terms in Table 4, which has been compiled from recent telegraphic transfer buying and selling rates for the currencies used in intraregional payments, namely, sterling and U.S. dollars and, in a few instances, regional currencies.
|Country||Pound sterling||U.S. dollar||Hong Kong dollar||Malaysian and Singapore dollars||Australian dollar||Japanese yen||Indian rupee||Pakistan rupee||Ceylon rupee|
The table indicates that the spread for a given currency is by no means the same in all the countries. For sterling the spread ranges from 0.3 per cent to 0.7 per cent. For U.S. dollars the variability is somewhat greater, ranging from 0.3 per cent to as high as 1.0 per cent for several countries. Similarly for regional currencies, such as Hong Kong, Malaysian, and Singapore dollars, the spreads calculated ranged from 1.0 per cent to 1.5 per cent. It may also be noted that the spreads for sterling and U.S. dollars tended to be narrower than the spreads for regional currencies, and furthermore, that of the two major currencies the sterling spreads are somewhat less than those for U.S. dollars. On average, the spread for sterling tends to be about 0.5 per cent, for U.S. dollars 0.7 per cent, and for the regional currencies in the range of 1.0 per cent to 1.5 per cent. Closer analysis indicates that the wider spread for U.S. dollars than for sterling occurs among Sterling Area countries and would appear to be primarily attributable to the fact that sterling is the currency in terms of which their currencies are pegged. On the basis of the known rates at which their monetary authorities have undertaken to buy and sell sterling, their banks have set their rates for sterling, and these are fixed in the sense of not being subject to day-to-day fluctuations. On the other hand, rates for U.S. dollars are arrived at by crossing the London-New York rate with the rates for the country’s own currency vis-à-vis sterling: in other words, one margin is superimposed on another. It is usual to add a further small margin on either side, which may be looked upon as compensation for the overnight risk that banks bear through covering their position in most currencies in London and being obliged to base their quotations on the closing buying and selling rates of the previous day in London. For countries, such as Japan and Thailand, that do not peg their currencies to sterling, the spread for sterling and U.S. dollars appears to be approximately the same.
Rates quoted for the regional currencies are based on London or New York cross rates, the generally higher spreads being attributable primarily to a larger loading, which takes into account such factors as the relatively small volume of business transacted in the currency as well as what are regarded as the greater risks involved in dealing in lesser known currencies.
Banks reported a variety of direct charges associated with international transactions. One group comprises outside charges, such as cable, postage, and stamp duty costs, which are recovered from the customer.17 The rest consists of a variety of commissions that banks levy, generally as a percentage of the value of the transaction, for various services rendered. One of the main charges in this group is the commission for opening letters of credit, which, as we have seen, tend to be used for the majority of trade transactions in the region. This commission is not the same in all countries: ¼ per cent appears to be the most common rate, although one country reported a rate of only ⅛ per cent and another, a rate as high as ½ per cent. Unlike the countries that charge a straight percentage of the value of the credit opened, some use a scale in which the percentage of the commission rises with the period for which the letter of credit remains open. For example, in one country the charge is ⅛ per cent a month with a minimum charge of ¼ per cent. In several countries the commission was higher for letters of credit providing for the drawing of usance bills than where sight bills only were involved. Banks also generally charge a commission on inward bills for collection to recompense them for the work involved in handling the various documents and in obtaining acceptance and payment from the importer. Again, the usual commission was ¼ per cent, although in a number of instances a lower rate was applied to amounts in excess of a basic figure. A few banks also reported small commissions for handling outward bills for collection, i.e., those drawn by the country’s exporters.
Apart from the above charges, which appear from the responses received to be the main ones levied by either the exporter’s or importer’s bank, some charges are also made by banks in the foreign centers depending on their role in the transaction. Where, as is normally true, sterling or U.S. dollars is the currency used, a bank in London or New York will as a minimum be required to carry out an order to transfer funds from the account of the paying bank to that of the receiving bank. For this international clearing function, London banks reported no charge, while the New York banks contacted indicated that they made either no charge or at most a nominal one to recoup any out-of-pocket expenses. Another service that is sometimes performed by banks in these centers is the confirmation of letters of credit opened for importers by banks in their own country. There were several reports, however, that as the reputations of banks within the region have become better established there has been a tendency to dispense with confirmation of letters of credit. In any event, the confirmation commission is small, one New York bank indicating a rate of
There was no evidence that any of the charges associated with making intraregional payments were in any way different from those involved in transactions with countries outside the region.
In addition to the cost of effecting international payments, another important aspect is the transit time involved, i.e., the time that elapses between the issuing of a payments instruction by one party to a transaction and the receipt of funds by the other party. In considering this question, particular attention was directed to the extent, if any, to which the transit time was being lengthened through the use of sterling and U.S. dollars in settlement and to the possible contribution that the use of regional currencies might make to speeding up the payments process.
At the outset it may be noted that in none of the countries covered was any dissatisfaction expressed regarding the time involved in making intraregional settlements under existing arrangements. The impression that emerged was that communications facilities throughout much of the region, whether in the form of cable or telex or air services, where instructions were mailed, were satisfactorily. Communications with the main foreign financial centers were also said to be good, with the correspondent banks in these centers being well geared to act promptly in effecting payments instructions received. Where payments instructions were sent by mail, the transit time was generally said to be approximately 7 to 10 days. However, if the time factor was important, the sending of instructions by cable offered a much more rapid means of payment, as it could be expected that such instructions would be acted upon the same day that they were sent or, at worst, on the following working day. While sending a cable represented an extra cost, this was of little consequence where large amounts were being remitted.
In general, the answers received indicated that little scope existed for speeding up settlements through the use of regional currencies. In other words, the transit time was the same irrespective of whether settlement was made in sterling or U.S. dollars or in one of the currencies of the region. This may be made clearer by tracing through the making of a hypothetical payment by an importer in country B to an exporter in country A. If A’s currency were used and the importer’s bank maintained an account with, say, the exporter’s bank in country A, then the importer’s bank could instruct, by cable or mail, the exporter’s bank to credit the account of the exporter with the specified amount and at the same time obtain reimbursement by debiting the account maintained with it by the importer’s bank. An alternative and much more typical example would be for the payment to be in, say, sterling, in which case the importer’s bank would instruct the exporter’s bank to credit the exporter, the payments instruction also specifying that cover has been provided by the importer’s bank simultaneously requesting its correspondent in London, with which it maintains an account, to transfer an equivalent amount of sterling to the credit of the exporter’s bank. In due course the exporter’s bank will receive confirmation from its London correspondent that its account has been credited with a specified amount. It will not, however, await this notification before acting on the instruction to pay the exporter. It is this feature of the normal correspondent arrangement, namely, the willingness of the parties to act immediately on payments instructions up to agreed limits without waiting for confirmation of the provision of cover that justifies the claim that transit time will be the same regardless of whether outside currencies, such as sterling or U.S. dollars, or regional currencies are used.
Where the paying bank lacks correspondent relationships with banks in the receiving country, the procedure will inevitably be somewhat different. It will be necessary to direct the payments order through, say, a London bank that has correspondent relationships with banks in the receiving country, and this will tend to lengthen the transit time. This is apparently the situation that some of the countries19 had in mind when indicating that payments made through London or New York took somewhat longer than payments made directly between the countries. However, given the generally well-developed network of branch and correspondent relationships between banks in the region, the need to resort to this procedure would be relatively infrequent. Moreover, if the volume of payments warrants it, the situation could be remedied by an extension of correspondent networks.
Financing of intraregional trade
Sources of trade financing are extremely varied. One possibility is that the parties to the transaction themselves provide the finance. For example, if the importer was financing the transaction he might pay at the time of shipment or even prior to shipment. On the other hand, if it is the exporter who is providing the finance, the contract may call for the drawing of a usance bill on the importer or for the importer to pay against receipt of the documents. An alternative to the traders themselves financing the transaction is for financial institutions in either the exporting or importing country to extend credit. An importer, for example, may finance his imports through an overdraft from his bank. The evidence would seem to indicate, however, that the major part of the financing of intraregional trade is provided in the exporting rather than the importing country, with the commercial banks and the central bank being the institutions primarily involved. This situation no doubt stems largely from a realization of the importance of the provision of adequate financing facilities in promoting exports.
In Japan much of the financing of exports is done by the commercial banks through discounting of export usance bills drawn under letters of credit. This practice is encouraged by the Bank of Japan, which extends to commercial banks low interest rate loans for up to six months against the collateral of these export bills. Commercial banks in Thailand also play an important role in foreign trade financing, which accounts for almost one third of their total loans and overdrafts. The Bank of Thailand offers rediscounting facilities to banks at concessional rates of interest for export bills. The Indian and Pakistan central banks also offer refinancing facilities in respect of export bills negotiated by commercial banks. In Australia the commercial banks are major sources of trade financing. Apart from providing preshipment financing to export customers by means of overdrafts, they also discount term bills of up to 180 days drawn by exporters, thereby providing finance during shipment and possibly for some time after the goods have arrived in the overseas country.
The above examples serve to indicate the types of domestic facilities that different countries have for providing short-term financing of their international trade. While these various facilities provide the major part of the financing for trade within the ECAFE region, some of the countries also rely to a considerable extent on London and New York, whose roles as major financial centers have traditionally included the financing not only of trade in which British or U.S. traders, respectively, are parties but also trade between foreign countries, a part of which would be intra-ECAFE trade. There are variations in the way in which sterling or U.S. dollar finance is made available for third country trade (as it is generally referred to) but normally it is provided under lines of credit that many of the banks in ECAFE countries, which are active in the foreign exchange field, have with banks in London or New York.20 The actual provision of financing under these lines of credit involves the drawing of a term bill in sterling or U.S. dollars, which may be for a term of up to 180 days, and the bill’s being accepted by the drawee bank, thereby making it eligible for discounting in the London or New York market, as the case may be.21 The financing may be arranged by either the exporter’s or importer’s bank, and it may be either the exporter or the importer who draws the bill. One possibility is that an exporter who has contracted to sell certain goods and requires finance to prepare them for shipment will draw a term bill under his bank’s line of credit with, say, a New York bank.22 Alternatively, finance during and perhaps after shipment may be obtained by the exporter’s drawing a term bill at the time of shipment under a line of credit that the importer’s bank has with a New York or London bank. As in pre-export financing, the exporter’s bank would negotiate this bill for the exporter and then rediscount it in New York or London. Another important variant, known as import refinancing, covers situations where the exporter draws a sight bill or where he draws a term bill for a shorter period than that for which the importer requires to be financed. When that occurs the importer’s bank will, at the same time that the bill drawn by the exporter is paid, draw a refinancing bill on the New York or London bank with which it has a line of credit and then discount this bill in the acceptance market.23
As far as the amount of U.S. dollar or sterling financing of intra-ECAFE trade is concerned, it is difficult to make even a rough estimate. Figures of U.S. dollar acceptances outstanding are set out in Table 5. They do not isolate the intra-ECAFE component, but at least they show a total figure for dollar financing of third country trade amounting to approximately US$2 billion. The table also indicates that the amount of this financing has grown quite rapidly in the past eight years, certainly more rapidly than acceptance financing of the United States’ own international trade.
|Dec. 1960||Dec. 1966||Dec. 1967||June 1968|
|Imports into the United States||403||997||1,086||1,338|
|Exports from the United States||669||829||989||944|
|Goods stored in or shipped between foreign countries||524||1,595||2,042||1,925|
The only available figures relating to U.K. financing are those relating to bills drawn by overseas residents and accepted by banks and acceptance houses in London (Table 6).
These figures cover financing not only of third country trade but also of trade involving the United Kingdom. In view of this fact and given that the total figures themselves are only fairly modest, it seems unlikely that the over-all amount, representing financing of intra-ECAFE trade, would be very large.
Questions were directed to countries about their use of London and New York facilities for financing intraregional trade. While the replies received did not indicate such magnitudes as the amount of financing being obtained or the proportion of intraregional trade being financed in these centers, they did give some general indications. A few countries said that they did not rely to any significant extent on financing in London or New York, at least in respect of their trade with the rest of the region. They did not avail themselves of import refinancing facilities, and it was the practice of their banks to retain term export bills until maturity rather than to rediscount them abroad. This appears to be substantially the position of Australia and New Zealand. Australian banks did report, however, that it was their understanding that financing in London and New York was used to a considerable extent in connection with exports from various countries of the region to Australia. Letters of credit were opened by the Australian banks providing for the drawing of term bills on London or New York. This enabled the exporter to draw a term bill that would be negotiated by the exporter’s bank, which would in turn have the bill accepted and rediscounted in either of these centers.
The majority of the countries indicated that they did make some use of financing facilities in London or New York. Most commonly, the means of obtaining the financing appears to be through rediscounting sterling bills in London or U.S. dollar acceptances in New York. Among the countries reporting extensive use of rediscounting facilities were Iran, Thailand, and Viet-Nam. Thailand and the Philippines referred to their banks’ use of pre-export financing facilities provided by New York banks. In some countries the extent to which export bills are rediscounted abroad was said to be largely dependent on the practices followed by individual banks. Sometimes foreign banks operating in the country were said to be more prone to rediscount bills abroad than were the indigenous banks. The replies of a number of countries appeared to indicate that while they regarded the existence of London and New York markets on which export bills could be rediscounted as an important facility, they did not automatically use it. Factors mentioned as relevant to deciding whether or not to retain export bills included the state of the bank’s domestic liquidity and the level of interest rates abroad compared with domestic rates. There were several reports that the high levels of interest rates in the United Kingdom in recent years had tended to reduce reliance on London as a source of financing.
A number of countries reported using London and New York facilities for refinancing imports from other countries of the region. Among them was Japan, which, while financing exports almost exclusively from domestic sources, relies heavily on the foreign financing of imports. Japan reported that about 40 per cent of its imports involve term bills, which means that financing is provided either in the exporting countries or in London or New York if the exporting countries’ banks rediscount the bills in these centers. For the remaining 60 per cent of imports, sight bills are drawn by the exporters. However, about 90 per cent of these sight transactions were said to be refinanced in foreign centers through Japanese banks’ drawing bills of terms ranging up to 180 days on correspondent banks under their extensive credit lines. Admittedly these figures relate to total Japanese imports but they were thought by the Japanese authorities to be also broadly indicative of the position in relation to imports from the rest of the ECAFE region. Apart from Japan, other countries that referred to New York or London facilities as important for the purpose of refinancing imports from other parts of the region included Thailand, Korea, the Philippines, and Burma. The replies of countries, while not conclusive, tended to confirm the impression conveyed by the figures referred to earlier that the amount of U.S. dollar financing is probably considerably larger than the amount of sterling financing.
IV. Summary and Evaluation
Present system of payments in the ECAFE region
1. Intraregional trade of the ECAFE countries constitutes about one third of their total trade. This is a high proportion in comparison with about 20 per cent for Central America24 and considerably less for other regions such as South America, Africa, and the Middle East. If the developed countries of the ECAFE region are excluded, intraregional trade of the developing ECAFE countries is still considerable, accounting for somewhat more than one fifth of their total trade. In view of the importance of intraregional trade for the ECAFE countries, it is useful to examine the existing method of settling payments in respect of this trade and to inquire whether any alternative arrangements for intraregional payments can be beneficial.
2. The relatively high proportion of intraregional trade reflects considerable complementarity already attained in the economies of at least some of the countries concerned.25 By itself, however, the existing share of intraregional trade can say little about what potential exists for regional trade expansion. On general grounds, it is undeniable that regional cooperation by such means as trade liberalization, coordination of investment programs, and integration of national markets can be of advantage, as access to a larger market will permit fuller utilization of the economies of scale and greater specialization. Many countries of the ECAFE region are implementing national development plans with a view to changing the structure of production of their economies. The enlargement of the market through regional cooperation can provide a framework for more efficient allocation of resources.
3. Along with a high volume of trade, the region has developed a wide network of intercountry banking relations. In addition to branches of foreign banks in the region, banks of several countries maintain branches in a number of other countries. More widespread are correspondent relationships maintained by banks of one country with those of others. The nature of these relationships and the services performed by correspondents vary. Some banks maintain accounts with their correspondents, but this is by no means universal. Credit facilities are arranged between a bank and its correspondent, but this also is not common. Other services performed through correspondent relationships include reciprocal transactions, such as drawing of demand drafts or telegraphic transfers on foreign banks, opening of letters of credit, forwarding of bills for negotiation or collection, and provision of credit investigation reports to exporters and importers. By and large, interbank relations, whether through branches or correspondent arrangements, appear to be extensive in the ECAFE region, which again is in marked contrast to the situation prevailing in some other regions.26
4. In connection with the settlement of mutual claims arising from trade and other transactions within the region, the main questions that arise are as follows: What currencies are used in invoicing and in final settlement? What are the instruments of payment and what credit facilities, if any, are involved? What are the cost and transit time involved in making payments?
5. In the ECAFE region the currency in which contracts are invoiced is generally also the currency in which payments are effected. Except for Thailand and Laos, where there is no official prescription of the currencies in which payments must be made or receipts obtained, all other countries of the region have regulations either specifying the currencies that may be used or indicating the general requirement that only convertible currencies may be accepted in payment of the country’s claims.27 These regulations still leave considerable freedom to traders and banks in the choice of currencies. The scope for using regional currencies is probably greatest among the Sterling Area countries of the region, as their regulations generally permit the use of any currency of a Sterling Area country. Among other countries, a few permit the use of one or more regional currencies. There is only a marginal use of bilateral payments arrangements within the region.
6. Available information indicates a predominant use of U.S. dollars and sterling as the currency of settlement of intraregional claims. For most countries the use of these currencies is considerably more than 50 per cent of intraregional transfers; for many the proportion is over 75 per cent and for some it is more than 90 per cent. Only two countries (Afghanistan and Nepal) reported a larger use of regional currencies than of extraregional currencies; little use has been reported of extra-regional currencies other than U.S. dollars and sterling.
7. The reason most strongly advanced for the use of U.S. dollars and sterling is close historical or economic ties with the United Kingdom and the United States. Among other reasons are their universal acceptance, their role as reserve currencies, the availability of forward exchange facilities, and the financial facilities made available by New York and London money markets.28 There is some evidence of a switch from sterling to U.S. dollars in recent years. This is particularly noticeable for such countries as Thailand and Japan. The growing importance of Japan in intraregional trade and the preference of Japanese traders and banks to deal in U.S. dollars have been important factors in the increasing use of this currency.
8. Regional currencies do not play an important role as a means of settlement in the region as a whole. The use of regional currencies is confined to transactions in which the country whose currency is used is a partner. An illustration of this point is the use of Indian rupees in transactions between India, on the one hand, and Afghanistan, Ceylon, or Nepal, on the other; the use of Hong Kong dollars between Hong Kong, on the one hand, and China or Malaysia, on the other; and the use of Australian dollars in payment for Australian exports to India, Ceylon, Singapore, and Japan. Perhaps of greater interest is the use of Australian dollars in Australia’s exports to New Zealand and New Zealand dollars in New Zealand’s exports to Australia with periodic settlement of net balances in sterling, or the use of Malaysian and Singapore dollars in the mutual trade of Malaysia and Singapore.
9. While regional currencies are used in these limited ways, rarely is the currency of a country of the region used to settle payments between two other countries of the region. To be a vehicle currency in this sense, certain conditions must be fulfilled—the currency must be generally acceptable and there must be confidence in its stability and adequate facilities for its sale and purchase. Also important is the existence of facilities for forward cover and for negotiating term payments instruments drawn in this currency. None of the ECAFE currencies fulfills these conditions at the present time. There is some evidence of an increasing use of Australian dollars within the region, but the market for this currency outside Australia is limited. Despite its strength, the Japanese yen is little used in intraregional settlements. There is no evidence in any of the countries of official action or intention to encourage a substantial use of the domestic currency as a general means of settlement.
10. International payments within the ECAFE region are generally made through banking channels. Resort to nonbanking channels through the use of currency notes, intracompany bookkeeping transfers, compensation or barter transactions, etc., appears to be minor. The most common instrument of payment for trade transactions is the bill of exchange drawn in sterling or U.S. dollars. In a few countries, bills are required, under official regulations, to be drawn under letters of credit. But even otherwise, the use of the letter of credit appears to be quite common. A few countries, however, noted that, with the strengthening of mutual confidence among traders, there was some increase in the use of bills for collection as the instrument of payment.
11. A good part of the financing of intraregional trade is provided in the exporting country through the commercial banks or the central banks, which in some countries provide rediscount or refinancing facilities. There is also considerable reliance in a number of countries on financing provided by the financial markets of New York and London. Usually this takes the form of having term export bills accepted and discounted abroad, or having sight import bills refinanced abroad, often under lines of credit established by the foreign bank in favor of the domestic bank concerned. Available information does not permit the quantification of the proportion of intraregional trade financed in New York and London, in these and other ways. Practices in the various countries differ widely; some, like Iran or Thailand, make extensive use of export rediscount facilities, while Japan obtains considerable import finance from abroad. It appears that as far as financing is concerned the role of New York exceeds the role of London.
12. An important aspect of banking and credit arrangements is the cost involved in settling claims. The largest element of cost is the cost of financing trade, which is dependent mainly on the interest rates ruling in the market in which financing is obtained. The other charges are the cost of converting domestic currency into foreign currency and vice versa, as is generally reflected in the buying and selling rates of banks for telegraphic transfers, and various charges such as the cost of cables and postage, stamp duty, commission for opening and confirming letters of credit, acceptance commission, commission for the collection of bills, and other handling charges. Some of these charges, namely, confirmation of letters of credit and acceptance commission, may be levied by banks in foreign money markets, while most of the others are levied by domestic banks. It is not always possible to identify the cost for each particular service; a charge may be due to a mix of services, and the banks may regard only the total of charges made for a certain transaction as the compensation for all the services rendered in connection with it.29 Thus, one or two countries noted that a part of the cost associated with foreign exchange conversion is included in the banks’ other charges. In a few countries the spread between buying and selling rates for telegraphic transfers might include charges for services other than currency conversion. The spread on telegraphic transfers for sterling and U.S. dollars ranges from 0.3 per cent to 1.1 per cent; the other charges reported by the banks appear to conform closely to banks’ practices elsewhere. The various charges, including the cost of financing, are applied without reference to the origin or destination of the transactions.
13. In view of the existing intercountry banking relationships within the region, the time interval between the issuing of a payments instruction by one party and the receipt of payment by the other is usually the same, irrespective of whether settlement is made in sterling or U.S. dollars or in one of the currencies of the region. If the payment is in, say, U.S. dollars, the importer’s bank instructs its correspondent (or branch office) in the exporter’s country to pay the given amount of U.S. dollars to the exporter, the payments instruction also specifying that cover has been arranged by the importer’s bank with its correspondent in New York. It is a normal feature of correspondent relationships that banks act immediately on payments instructions up to prearranged limits without awaiting confirmation of the provision of cover.
14. The existing system of payments, as summarized above, appears to work satisfactorily; no serious criticism of this system has been brought to our attention. The denomination of payments instruments in U.S. dollars or sterling makes them readily acceptable. Traders are able to obtain cover against the risk of changes in the exchange rate of the currency. The network of correspondent relationships enables the payee to receive payment promptly. Moreover, the drawing of bills in U.S. dollars or sterling makes them negotiable in the money markets of New York and London.
Use of regional currencies within a clearing arrangement
15. Wider use of regional currencies can be envisaged within a clearing arrangement that avoids the necessity of settling individual transactions in U.S. dollars or sterling. The Central American Clearing House is an illustration of this type of arrangement. Under the Central American arrangement an importer pays in his own currency, usually by mailing to the exporter a personal check certified by his bank or a cashier’s check purchased from his bank. The exporter obtains credit from his commercial bank in his own currency upon presentation of the check, and the bank in turn is reimbursed by the central bank, which forwards the check for clearance to the central bank of the importing country and notifies the Clearing House of its claim. Upon confirmation by the central bank of the importing country of its liability, the Clearing House debits and credits the accounts of the central banks concerned in a unit of account called Central American peso, which is equivalent to US$1. The net position of a member (i.e., after the offsetting of credits and debits by the Clearing House) on all transactions paid in this manner is settled in U.S. dollars at the end of every six months.30 However, during this period if a member’s net claim exceeds the prearranged limit on interim credit extended by it to the Clearing House, the excess is settled in U.S. dollars if the member requests.
16. The mechanics of a clearing arrangement may differ, but certain basic understandings must be reached and observed by members. The primary purpose of a clearing arrangement is not the extension of credit but a simplification of settlement procedures through multilateral compensation of claims arising over a certain period and settlement of only net positions at the end of the period. This, however, implies that during this period certain members must extend credit to others. Members may wish to limit the amount of this interim credit, in which case arrangements must be made for the prompt settlement of any claims in excess of the limits. Similarly, each participating member must also undertake to settle any net claim upon it at the end of the interim period in an acceptable currency. If the clearing agency records mutual claims in regional currencies, there will be need for exchange rate guarantees to protect the value of members’ claims; alternatively, a unit of account, defined in terms of gold or U.S. dollars or in any other way to keep its value stable,31 may be used. These understandings are a part of the agreement on the Central American Clearing House, but there are no agreed procedures to deal with any cases of default that might arise.
17. A regional clearing union may offer certain direct advantages. If payments between members that were previously settled through bilateral payments accounts are now channeled through a clearing union, there is a gain as claims of one country upon another now become multi-laterally transferable. In the ECAFE region, however, bilateralism plays a minor role; consequently, the gain from multilateralization of payments now settled through bilateral accounts can be only marginal.
18. A regional clearing arrangement may be so devised as to stimulate closer relations among banks of member countries with a view to promoting intraregional trade.32 As noted before, the ECAFE region maintains a fairly wide network of intercountry bank relationships. While most countries appear satisfied with the existing relationships, others believe that knowledge of opportunities for trade, of facilities for financing it, and of information on the credit standing of traders in the region is still limited and could be improved by closer relations among banks of the region.
19. The most important direct advantages claimed for a regional clearing union are the economy and promptness with which intraregional payments can be settled. From what has been said in paragraph 13 about transit time, it is clear that where active relationships exist among banks—as is generally true with the ECAFE countries—the speed of settlement is not likely to be improved by channeling payments through the clearing union rather than using U.S. dollars or sterling. The argument that settlement through a regional clearing union may result in economies has two aspects: (1) that there may be a reduction in the cost of settlements; (2) that there may be a reduction in the amounts of working balances that have to be held in financial centers abroad.
20. A clearing arrangement will not dispense with the need for the trader to obtain finance for trade. Any interim credit that a country may receive will be available to the central bank, not to the trader. Thus, the cost of financing trade, where such finance is needed, has to be borne by the trader whether a clearing arrangement exists or not. Similarly, charges on account of cables, postage, opening of letters of credit, collection of bills, etc., will continue to be paid by the trader to his domestic bank when the respective services are used. Use of the clearing union mechanism will avoid the need for transfers of funds between bank accounts in New York or London to settle individual transactions; however, foreign banks either do not make any charge for such transfers or make only a nominal charge in certain circumstances. The remaining possibility of a reduction in cost arises from the fact that the channeling of individual transactions through a clearing mechanism will not call for a conversion from domestic currencies into U.S. dollars or sterling, or vice versa.
21. If payment is made in the exporter’s or importer’s currency, the need for conversion will still exist at one end of the transaction, and consequently a margin may be applied. In the Central American arrangement, such margins have been eliminated; in effect, therefore, foreign exchange conversion at one end is subsidized, resulting in a saving for traders at each end. While it is true that the use of the clearing mechanism will benefit one party to a transaction, it is difficult to determine precisely what the magnitude of the saving would be. If the margin now charged by the banks reflects no more than compensation for whatever services and costs are associated with foreign exchange conversion, it could be a measure of the saving. If the margin now charged reflects more than a fair compensation, either the banks are making excessive profits or the margin also reflects compensation for a part of other services rendered to customers. If the former is true, it is a matter of internal policies, for the monetary authorities can, if they so choose, act to curb excessive profits. If the latter is so, it is likely that the elimination of the margin will induce banks to raise their other charges. In any case, in view of the difficulty of identifying what costs and services are covered by the existing margins charged by the banks, these cannot always be regarded as a guide to the reduction in cost to the trader as a result of the establishment of a clearing mechanism.
22. The fact that a clearing arrangement removes the need for foreign exchange conversion at one end of the transaction also means that the need for forward cover is eliminated for one party. Thus, an exporter is assured of receiving the exact amount of his sales if contracts are expressed in the exporter’s currency. For the importer who has undertaken to make a payment in the exporter’s currency, the risk of a devaluation of his own currency remains and, in view of the general absence of forward market facilities for regional currencies, it may not be possible for him to obtain cover by buying the exporter’s currency forward.33
23. With a clearing arrangement, a participating central bank will make and receive foreign exchange payments in the period between settlement dates if the mutual credit limits, if any, are exceeded. Moreover, at each settlement date the net position of each member vis-à-vis the rest of the region will have to be settled in foreign exchange. These arrangements do not reduce the need for foreign exchange reserves to meet balance of payments contingencies, since net payments of foreign exchange over time are not affected in any way.34 More important are the effects that clearing arrangements might have on the transactions demand for foreign exchange. In other words, given that a clearing arrangement will bring about a reduction in the number and volume of payments of foreign exchange, will the commercial banks that are mainly responsible for day-to-day foreign exchange operations be able to reduce the working balances they currently hold abroad? If the answer is in the affirmative, then the advantage from the country’s point of view is the release for other uses of foreign exchange now held primarily as noninterest-bearing deposits.
24. For the ECAFE region it appears doubtful whether there would be any worthwhile reduction in working balances. Banks in this region generally maintain limited amounts of balances abroad. In some countries there are limits imposed by regulations on the amount of such balances, but even where limits are not applied banks seldom maintain balances in excess of their immediate requirements. It should be noted that maintenance of some balance is usually a condition for obtaining credit facilities from a foreign bank; such credit is an important means of foreign financing for several countries. Moreover, banks maintain balances abroad not solely to meet transactions needs but also as an inducement to foreign correspondents to direct business to them. Given the limited size of the existing working balances, the various purposes that they serve, and the fact that trade with countries outside the region will continue to be settled in foreign currencies and partly financed in foreign centers, the channeling of intraregional trade through a clearing union is unlikely to make a perceptible reduction in working balances.
25. The significance of the possible effects of a clearing arrangement discussed above sometimes depends on the proportion of intraregional transactions that is channeled through the clearing mechanism. The use of this mechanism could, of course, be made mandatory for all intraregional transactions. This means that each country would have to apply exchange control regulations in order to ensure that transactions with the rest of the region were settled in a mutually agreed manner. For certain ECAFE countries, such as Thailand and Laos, this would require imposition of exchange controls; for others, adaptations of present requirements would be called for. The institution or adaptation of exchange controls for this purpose would not only involve administrative costs but also create a potential danger of discrimination against countries outside the region.
26. A mandatory system also means that the discounting or negotiation of bills abroad would not be possible, since payments instruments within the region could no longer take the form of bills on New York or London. The resulting loss of foreign financing facilities for intraregional trade would affect the countries within the region differently, but for some, such as Japan, Thailand, Iran, Korea, and the Philippines, the loss might be considerable and would have to be made good by substitute domestic facilities. One or two countries have expressed the fear that a shift in the channeling of transactions from foreign banks to an intraregional settlement system might upset the existing relations of local banks with their correspondents abroad, and so might make it difficult for the local banks to maintain their access to international credit for financing extraregional transactions.
27. A mandatory system of clearing may be established by mutual agreement of the participating members. Alternatively, each member could retain the freedom to decide whether it would require all transactions to be settled through the clearing union or would leave it to traders to choose what they regard as the most advantageous method of settlement. Contracts could then be drawn in foreign currency, and bills could be negotiated abroad, as at present, if desired. If use of the clearing mechanism remains optional for the traders, there is no need for exercising control over the channeling of payments. Moreover, an optional system will not affect existing relations of banks with foreign correspondents. On the other hand, unless the advantages of the use of the clearing mechanism are clearly established or additional inducements are offered by the authorities to use this mechanism, an optional system may not lead to a substantial redirection of payments.
28. The foregoing paragraphs have considered clearing arrangements purely as an alternative to the present method of settlement. However, the justification for a clearing arrangement could perhaps be sought in the context of wider regional economic cooperation. Thus, the main purpose of the Central American Clearing House has been to promote the use of regional currencies as a step toward full monetary integration, which would eventually involve using a common currency. Even without envisaging full monetary integration, it can be argued that cooperation in monetary and exchange matters is important for any effective regional or subregional programs to promote trade and economic growth. A clearing arrangement, by promoting close contacts among monetary authorities and commercial banks, could provide opportunities for such cooperation.
Facilités bancaires et de crédit internationales existant actuellement dans la région de la CEAEO
Cet article est une version légèrement remaniée d’un rapport préparé au cours du second semestre de 1968 à l’intention de la Commission économique pour l’Asie et l’Extrême-Orient (CEAEO), qui avait demandé au Fonds d’étudier les facilités bancaires et de crédit internationales de la région relevant d’elle.
Les règlements relatifs aux échanges commerciaux très importants entre les pays de cette région, échanges qui représentent environ un tiers du commerce extérieur global des pays intéressés, sont facilités par un excellent réseau de succursales et de correspondants bancaires mis sur pied par les banques de la région, qui entretiennent des rapports étroits avec les banques des principaux pays étrangers, notamment celles de New York et de Londres. A quelques exceptions près, il ressort de cette étude que la facturation et le règlement des transactions entre pays relevant de la CEAEO s’effectuent pour la plupart en livres sterling et en dollars E.U. Le recours à ces monnaies internationales, outre qu’il s’avère économique, permet de faire appel aux nombreuses facilités bancaires et de financement qu’offrent les grands centres financiers étrangers. Des monnaies comme le dollar australien, le dollar de Hong-Kong, le dollar de Malaisie et le dollar de Singapour, ainsi que la roupie indienne, ont également été utilisées, mais uniquement dans le cas où le pays dont la monnaie était utilisée participait directement à la transaction.
En ce qui concerne tant les frais que les délais de règlement, aucune critique importante n’a été formulée contre le système actuel des paiements entre les divers pays de la région.
La création d’un système régional de compensation pourrait encourager une plus grande utilisation des monnaies des pays relevant de la CEAEO. Il ne faut pas s’attendre toutefois à ce que cette innovation entraîne par elle-même un accroissement sensible des échanges commerciaux dans le cadre de cette région. Sur le plan des frais et délais de règlement, les avantages d’un tel système seraient vraisemblablement peu considérables. La mise sur pied d’un dispositif de compensation pourrait néanmoins se justifier afin de favoriser la coopération entre les pays de cette région dans les domaines de la monnaie et des changes.
Facilidades crediticias y bancarias internacionales existentes en países de la CEP ALO
Este artículo es una versión ligeramente modificada del informe preparado en los últimos meses de 1968 con el fin de satisfacer la petición de la Comisión Económica para Asia y el Lejano Oriente (CEPALO) de que se estudiaran las facilidades crediticias y bancarias internacionales de que disponen los países de la CEP ALO.
Las liquidaciones relacionadas con el considerable volumen del comercio entre los países de la CEPALO—aproximadamente una tercera parte del comercio exterior total de esos países—se facilitan gracias a una extensa red de sucursales y corresponsales de bancos de la región y a las relaciones que éstos mantienen con bancos que operan en los principales centros financieros de otros países, sobre todo en Londres y en Nueva York. Con pocas excepciones, los países declararon que las facturas y liquidaciones de las transacciones intrarregionales se hacen principalmente en dólares de EE.UU. y en libras esterlinas. El uso de esas monedas internacionales, aparte de que resulta económico, permite valerse de las diversas facilidades bancarias y del financiamiento comercial que ofrecen los centros financieros extranjeros. Se informó que se emplean en ciertos casos algunas monedas regionales como el dólar australiano, el de Hong Kong, el de Malasia y el de Singapur, y la rupia de la India, pero solo cuando uno de los países cuya moneda se usa participa en la transacción. No se expusieron críticas graves del sistema actual de liquidaciones intrarregionales ni en cuanto al costo de las mismas, ni a su rapidez.
El establecimiento de una cámara regional de compensación podría contribuir a un mayor uso de las monedas regionales. Sin embargo, cabe suponer que este solo hecho apenas si podría infundir un importante estímulo al comercio intrarregional; no es probable que las ventajas de ese sistema en lo que respecta al costo o a la rapidez de las liquidaciones sean considerables en comparación con las que ofrecen los métodos existentes. No obstante, sí podría aducirse que la creación de un sistema de compensación serviría para fomentar la cooperación regional en el campo monetario y cambiario.
Mr. Mookerjee, Senior Advisor in the Exchange and Trade Relations Department, is a graduate of the University of Calcutta and of Harvard University. He was formerly Professor of International Finance at the Indian School of International Studies, New Delhi. He is the author of Factor Endowment and International Trade and a number of articles published in technical journals.
Mr. Chandavarkar, Advisor in the Asian Department, is a graduate of the University of Bombay and of the London School of Economics. He taught economics at the Sophia College, Bombay, and at the Osmania University, Hyderabad. He also served as Economic Advisor, Bank of Libya; Director in the Economic Department, Reserve Bank of India; Research Officer, Bank Award Commission, Government of India. He has contributed a number of articles to economic journals.
Mr. Cleary, economist in the Stabilization Policies Division of the Exchange and Trade Relations Department, is a graduate of the University of Melbourne and Australian National University. He is presently on leave from the Reserve Bank of Australia.
United Nations, Economic Commission for Asia and the Far East, Report and Recommendations of the Seminar on Financial Aspects of Trade Expansion, E/CN.11/TRADE/TE/L.3 (Bangkok, 1967), p. 13.
The countries covered were Afghanistan, Australia, Burma, Ceylon, China, Hong Kong, India, Indonesia, Iran, Japan, Korea, Laos, Malaysia, Nepal, New Zealand, Pakistan, Philippines, Singapore, Thailand, and Viet-Nam.
Except that transfers for expenses of certain students abroad are not subject to the Consolidation Tax.
The exceptions are trade in petroleum and petroleum products, defense materials, border trade, and invisibles unrelated to trade.
The failure of branch networks to spread into some countries may be due to prohibitions either on the entry of foreign banks or on the acceptance by foreign banks of local deposits.
Reports from countries indicate that almost invariably the currency of payment and the currency in which the contract is expressed are the same.
In Korea, the predominance of U.S. dollars in intraregional settlements dates from the termination in March 1966 of its bilateral payments agreement (Open Account Clearing System) with Japan. Approximately one fourth of total settlements had been effected through this account.
Burma withdrew from the Sterling Area in October 1966.
The payments aspects of this Treaty, which also includes Turkey, are described on pages 395–96.
Countries reporting such a shift included Australia, Burma, Hong Kong, Japan, New Zealand, Malaysia, Singapore, and Thailand.
Insofar as such transactions are generally required to be settled in sterling, another Sterling Area currency, or local currency through the account of a bank domiciled in any country in the Sterling Area with a bank in their country.
Special facilities under which some firms in India were permitted to retain export proceeds abroad to offset their imports and other foreign exchange commitments were withdrawn recently.
Viet-Nam, for example, reported that for financial transactions involving large amounts payment was as a rule by means of telegraphic transfer, whereas smaller payments were commonly by mail transfer.
See H.W. Arndt and C.P. Harris, The Australian Trading Banks (Melbourne, 1965), p. 112.
Thailand also reported that occasionally, as a means of slowing down exports of rice, when large shipments are involved exporters are required to show that letters of credit have been opened in their favor.
Cross rates may, however, vary within 2 per cent of parity whenever such rates result from the maintenance of margins of no more than 1 per cent from parity for a convertible currency.
In Thailand, for instance, airmail charges were reported to be B 10 within Asia, B 15 to Europe, and B 20 to the United States; stamp duty on bills of exchange is B 3 for bills under B 6,000 and B 5 for larger amounts (B 20.8 = US$1).
See Robert L. Cooper, “Bankers’ Acceptances,” Federal Reserve Bank of New York, Monthly Review, Vol. 48 (1966), pp. 127–35.
For example, Afghanistan, Burma, Iran, and Korea.
These lines of credit are not solely for financing third country trade but also for trade of the ECAFE countries with the United Kingdom and the United States. Lines of credit are not necessarily confined to acceptance facilities but may relate to other forms of financing, such as advances or overdrafts to foreign banks.
It is apparently quite common for the drawee bank in London or New York to purchase the bill after accepting it.
At least in the New York market, acceptance financing is not necessarily confined to the period of transit of the underlying goods. Pre-export financing may be obtained on the basis of the exporter’s contract to sell the goods.
For a more general outline of U.S. dollar acceptances as a financing device, see Cooper, op. cit.
This was the proportion in 1966; it was only 8.8 per cent in 1962, the first full year of the operation of the Central American Clearing House.
The ECAFE region is wide and diversified; considerable variations exist in trade relations between particular countries.
One of the purposes of the clearing arrangement of the Latin American Free Trade Association (LAFTA), comprising the South American countries, is to promote closer relations among banks of the member countries.
Four countries in the area (Japan, Australia, Malaysia, and Singapore) have accepted the obligations of Article VIII of the Fund’s Articles of Agreement, and their currencies therefore qualify as convertible currencies under the Articles.
A number of countries in the region also make considerable use of facilities provided by banks in San Francisco.
Particular charges may occasionally vary depending on the size of a transaction or on customer/banker relationships.
The Seminar on Financial Aspects of Trade Expansion envisaged a simple clearing union with monthly settlements for the ECAFE region. See United Nations, Economic Commission for Asia and the Far East, op. cit., p. 12.
In the European Payments Union (EPU) all accounts were to be expressed, under Article 26 of the Agreement, in a unit of account of 0.8867088 gram of fine gold (the gold content of US$1). This gold content could be changed by a unanimous decision of the Organization for European Economic Cooperation, and no contracting party could object to a modification equivalent to or less than the change in the parity of its own currency with respect to gold since the inception of the Agreement. In effect, this provision defines the EPU unit in terms of the currency whose future gold value remains most stable.
The signatory central banks shall encourage insofar as possible the increasing of financial relations among the commercial banks of the region. To this end, they may utilize the credits that are granted to stimulate the opening of lines of credit between commercial banks.
Transfers of the balances resulting from reciprocal credit agreements entered into by commercial banks may be cleared through the system.
It should be noted that, unlike the procedure followed by the Central American Clearing House, compensation of claims of LAFTA members takes place under bilateral lines of credit established by the central banks.
In the Central American Clearing House, the importer pays in his own currency irrespective of the currency in which contracts may be expressed, and as soon as a commercial bank receives an item scheduled to pass through the clearing, it is considered an item in transit. All items in transit are guaranteed by the central bank of the paying country against any losses on account of exchange rate changes. However, the risk of such loss remains for the importer during the period between the drawing of the sales contract and the relative payment.
In fact, the use of the clearing mechanism is likely to reduce the use of foreign credit to finance intraregional trade (see paragraph 26). To the extent that the loss of foreign financing is not compensated by the interim credit obtained through the clearing union, a central bank’s net payments of foreign exchange may increase. For instance, if seasonal imbalances in a country’s regional balance of payments position are now absorbed by international banking or trade credits, participation in a clearing union with a relatively short interval between settlement dates may make it necessary for the central bank to finance such imbalances.