TITLE:
Is There a Reserve Saving Effect of International Clearing Union? Testing for Asian Clearing Union
AUTHORS:
Vijay Singh Shekhawat, Vinish Kathuria
KEYWORDS:
International Clearing Union, Reserve Saving Effect, International Trade Settlements, Inter-Temporal Credit
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.3,
April
20,
2017
ABSTRACT: International
Clearing Unions (ICU) are expected to save international reserves for their
members. This study derives a benchmark for reserves saving (RSE) that includes
all net reserve savings net of costs for inter-temporal credit that accrue from
the clearing process within any ICU. As a test case, RSE of Asian Clearing
Union (ACU) is computed and is found to be US $4.5 billion per year over the period 2000 to 2015. RSE
ranges from zero to US $8 billion. A counterfactual extension of ACU
membership to Thailand and Malaysia indicates that the RSE may not necessarily
increase. The RSE can be extended to any clearing system that follows the
principles of inter-temporal credit, multilateral netting and uses single
currency for netting and settlement. RSE of such a clearing systems will depend
on the balance of credit and debit positions of members. RSE is highest when
the trade is perfectly balanced and the countries follow a floating rate
regime.