Working Paper: CEPR ID: DP824
Authors: Barry Eichengreen
Abstract: Since the collapse of the Soviet Union, the trade of its successor states has spiralled downward. The European Payments Union of the 1950s is frequently invoked as a model for solving this problem. In this paper I show that in fact the EPU is an inappropriate framework for organizing the former Soviet Union's trade and payments. The only multilateral clearing union that is feasible prior to stabilization is one based on continuous multilateral balance among the participating countries. Such an arrangement is identical in its essentials to current account convertibility. In effect, then, the only choices available to the former Soviet Union prior to stabilization are bilateralism and convertibility. I make the case for convertibility and against current proposals for an Interstate Bank.
Keywords: trade; payments; former soviet union
JEL Codes: F02; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EPU (F36) | recovery in intra-European trade (O52) |
| EPU (F36) | stabilize trade relations (F13) |
| EPU (F36) | promote economic integration among member states (F15) |
| absence of macroeconomic stabilization in FSU (E65) | infeasibility of EPU-like payments system (E42) |
| high inflation in FSU (E31) | infeasibility of EPU-like payments system (E42) |
| structural economic conditions of FSU (P39) | effectiveness of proposed payment mechanisms (D47) |
| bilateralism or current account convertibility (F32) | viable arrangements for FSU (F55) |