Clearing

From Supply Chain Management Encyclopedia

Jump to: navigation, search

Russian: Клиринг

General Provisions

A clearing arrangement [1] (also called a bilateral clearing agreement) is a form of barter in which the counterparties (governments) contract to purchase a certain amount of goods and services from one another. Both parties set up accounts with each other that are debited whenever one country imports from the other. At the end of an agreed-upon period of time, any account imbalances are settled for hard currency, or by the transfer of goods. The clearing arrangement introduces the concept of credit to barter transactions, and means bilateral trade can take place and does not have to be immediately settled. Account balances are periodically determined and any trade imbalances are settled in an agreed-upon currency. It is known that last two decades bilateral clearing agreements have usually taken place between Third World and Eastern European countries.

There are different fields of clearings: trading, banking, stock exchanging, currency exchanging. However, there is a currency clearing [2] that is in the subject of the present article. This is a settlement system between the participants of foreign trade on the basis of international clearing systems (cyberclearing included) and intergovernmental clearing agreements. The most important actors of currency clearings are clearing banks that deal with accounting and offsetting assets and liabilities, can also lend to members clearing operations.

Therefore, there are two different classes of international clearing arrangements in international trade:

International Clearing System is used for futures contract[3] transactions when a transaction is entered on an international level. This type of clearing was developed in order to induce world trade as well as market efficiency. The majority of these types of transactions are administered through an international clearing house[4].

While clearing arrangements are well-known on capital markets their applications to commodity transactions in the frame of commodity exchanges or on OTC-markets [5] they are, in interests of better understanding their place in international logistics, presented herein. These applications, as it is mentioned above, are known in forms of intergovernmental clearing agreements and international clearing systems. While the first form mainly belongs to history today, the second one has demonstrated a great number of implementations: from intercorporative bilateral clearing agreements to multilateral clearing systems (online facilities included).

Some Historical and Contemporary Data

The currency clearing arrangements were well-developed in the time of the Great Depression (1929-1932). There was not hard currency enough for settlements in international trade. National governments introduced strict currency regulations. Clearing arrangements became suitable tools to support international trade transactions. Settlements between parties of the said transactions and clearing banks were arranged on the basis of the national currencies. On the one hand, exporters received payments in national currency on their accounts from clearing banks and, on the other hand, correspondent importers paid in their national currency in appropriate clearing banks. The first clearing agreement was signed between Switzerland and Hungary in 1931. In the mid-1950’s, approximately 60 percent of all international accounts were settled through currency clearings. Since 1958, as a result of the expansion of the currency convertibility of a number of capitalist countries, the share of clearing operations in the entire payment turnover of the capitalist world has been gradually declining[6]. Then (1950s), as a result of after war economic restoration and sufficient growth of international trade, many countries began to move to the creation of multilateral clearing. The European Payments Union (EPU) was created in 1950 by Organization for European Economic Cooperation (OEEC) to replace these bilateral payment agreements by a multilateral system capable of revitalizing the European economy. The EPU facilitated the convertibility of European currencies by setting exchange rates that were deemed to reflect the reality of each country’s economic situation. On the other hand, currency restrictions were maintained vis-à-vis the dollar area. It therefore acted as an international clearing house, helping to compensate and balance the accounts of each European country with those of its neighbors. In practice, each EPU Member set parity between its currency and the unit of account, which was fixed in grams of gold based on the gold value of the dollar, as well as a single exchange rate [7]. Regardless total globalization and world economic liberalization have created free hard currency worldwide movements, there are a lot of clearing houses and their role is very important for international trade[8]. One of them, Clearing House Interbank Payments System (CHIPS) [9] , settling now well over US$1 trillion a day in more than 250,000 interbank payments, seems to be an instrument of the global dollar dominance[10] .

References

  1. Eun, Ch.S., Resnick, B.G. International Financial Management, McGraw-Hill, Irwin, - Ch. 20.
  2. Katasonov, V. International clearing - our answer to monetary and financial U.S. dictates. RUfacts - http://ru-facts.com/news/view/35377.html
  3. A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Unlike options, futures convey an obligation to buy. The risk to the holder is unlimited, and because the payoff pattern is symmetrical, the risk to the seller is unlimited as well. Dollars lost and gained by each party on a futures contract are equal and opposite. In other words, futures trading is a zero-sum game. Futures contracts are forward contracts, meaning they represent a pledge to make a certain transaction at a future date. The exchange of assets occurs on the date specified in the contract. Futures are distinguished from generic forward contracts in that they contain standardized terms, trade on a formal exchange, are regulated by overseeing agencies, and are guaranteed by clearinghouses. Also, in order to insure that payment will occur, futures have a margin requirement that must be settled daily. Finally, by making an offsetting trade, taking delivery of goods, or arranging for an exchange of goods, futures contracts can be closed. Hedgers often trade futures for the purpose of keeping price risk in check. - http://www.investorwords.com/2136/futures_contract.html#ixzz37fK29eWw
  4. http://www.investorwords.com/12182/international_clearing_system.html#ixzz37fI6ngHG
  5. A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems (PETS) [Remarks of active chairman Mary L. Schapiro United Nations Securities and Exchanges Commission at the re-dedication of the Chicago Stock Exchange -http://www.sec.gov/news/speech/1993/070893schapiro.pdf]. An over-the-counter (OTC) market and an exchange market are the two basic ways of organizing financial markets. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected. In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations. - http://www.investopedia.com/terms/o/over-the-countermarket.asp
  6. http://encyclopedia2.thefreedictionary.com/clearing+agent
  7. The European Payments Union - Historical events in the European integration process (1945–2009) - http://www.cvce.eu/collections/unit-content/-/unit/en/02bb76df-d066-4c08-a58a-d4686a3e68ff/ab473e40-d7d8-419b-b507-ac6d7a7ffe76
  8. Clearinghouse Survey – Futures Industry – 3/13.2007 - http://www.futuresindustry.org/fi-magazine-home.asp?v=p&a=1178
  9. Electronic funds transfer system that handles over 95 percent of all international dollar payments. Located in New York City, chips settles transactions through adjustments in special account balances at the Federal Reserves Bank of New York City. - http://www.businessdictionary.com/definition/Clearing-House-Interbank-Payments-System-CHIPS.html#ixzz37lFrUKCQ
  10. Summers, B.J., Gilbert, R.A. Clearing and Settlement of U.S. Dollar Payments: Back to the Future? - https://research.stlouisfed.org/publications/review/96/09/9609ag.pdf
Personal tools
Our Partners