A Note on Payments Relations between Latin American and EPU Countries

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PART OF LATIN AMERICAN TRADE with countries of the European Payments Union is conducted on a dollar basis, part on a sterling basis, and the remainder on the basis of other currencies. The payments, clearing, and compensation arrangements of Latin American countries with Europe differ widely from country to country and are subject to frequent change, making difficult a precise division of Latin America into "dollar area" and "nondollar area" countries. Some Latin American countries which have "Bilateral Accounts" with the sterling area are "dollar countries" insofar as continental European countries are concerned. Other Latin American countries, however, which are classified in the "American Account" group of the sterling area, have bilateral arrangements with some continental countries. Certain bilateral payments agreements between Latin American and European countries provide that freely disposable U.S. dollars shall be used as the means of effecting commercial payments (e.g., the agreement between Uruguay and Italy and that between Peru and Western Germany). Other agreements, in contrast, employ the U.S. dollar as a unit of account ("restricted" dollars); the mechanism of current settlements, however, is designed to avoid payment in freely disposable U.S. dollars, and only final settlement at the termination of the agreement is to be effected in freely disposable U.S. dollars, other agreed currencies, or gold. (See Table 1.) With countries that are classified in the American account group by the U.K. Exchange Control, U.K. trade is in effect conducted on a dollar basis, under a mechanism whereby the United Kingdom makes payments in sterling which is convertible into dollars whenever the recipient country so requests. In this group are the Central American countries, the Caribbean countries, and Colombia, Venezuela, Ecuador, and Bolivia. The Latin American countries included in the American account group of the sterling area do not coincide exactly with the countries