The Use of Bilateral Agreement Currencies for Trade with Third Countries

Abstract

M OST TRADE for which payment is made through a bilateral payments agreement consists of goods originating in one partner country and destined for the other. This, clearly, would normally be expected, in accordance with the rules applying to a bilateral trade and payments relationship. During recent years, however, the payments channels between various pairs of bilateral countries (A and B) were frequently used to settle trade transactions of a different nature, involving trade between one or both of the partners with a third country (C). This situation arose if a payment through a bilateral agreement account was made from B to A1 either for the import of goods into B, originating not in A but in C, or for the export of goods from A, destined not for B but for C. It is clear, however, that in both cases there had to be some further arrangement which closed the transaction. Conceivably, a direct payment was made by A to C (case 1 in Diagram 1), or, alternatively, a direct payment was made by C to B (case 2 in the diagram). In such cases, the total three-cornered transaction consisted of one direct commercial transaction and two transfers, both of which were in conflict with normal currency prescription regulations. It is also possible that one of the bilateral partners might have acted as a commercial go-between, re-exporting or selling in transit C's goods to the other partner (case la in Diagram 1), or the other partner's goods to C (case 2a in the diagram), while itself arranging payment in either direction. Under these conditions, there would not have been any direct contacts, either commercial or monetary, between the country of origin and the country of destination of the goods concerned. The total arrangement would have consisted of a transit transaction (which might or might