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Definition

Reasons for Existence of Clearing Union

Among the basic reasons for the formation of a clearing union, the following can be mentioned:

i) Exports and imports among members can expand relatively faster because of conservation of foreign exchange  in intra-group transactions, at least until the settlement date.

ii) Trade liberalization can be promoted initially among the members.

iii) Exploitation of scale economies would be made possible by enlarged trade.

iv) An adjustment process can be promoted that would raise the international competitiveness of the members which have similar distortions in trade and production.

v) Measures and surveillance by the union can help to secure a more balanced current account which in turn contributes to the creation of conditions for the future convertibility of each of the currencies of member countries.

vi) Ground can be prepared for regional economic cooperation in general and for monetary and financial cooperation in particular.

 

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