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.