A Payments Mechanism for the Former Soviet Union: Is the EPU a Relevant Precedent?

Abstract

European Payments Union Barry Eichengreen Trade between the republics of the former Soviet Union (FSU) is imploding. One feasible direction for progress is the restoration of a mechanism of multilateral settlements for trade between the republics. The European Payments Union of the 1950s is often invoked as a model. To evaluate this proposal, I distinguish a clearing union without temporary credits, a payments union with credits, and full convertibility on current account. The last two have very similar macroeconomic consequences, but both require prior macroeconomic stabilization. Since this has yet to be achieved within the former Soviet Union, the current attempt to implement an EPU-style payments union with credits is unlikely to succeed. In postwar Western Europe, stabilization had already been accomplished by the start of the EPU. Moreover, the significance of the EPU went way beyond provision of multilateral clearing. It was a commitment mechanism that helped to cement both the domestic bargain between capital and labour and the international bargain to move towards freer trade and greater European integration. Nothing similar applies within the former Soviet Union, for which the EPU is not a helpful precedent.