International trade settlements using Keynesian model of Clearing Union

This study is concerned with the effects of International Clearing union (ICU) using Asian Clearing Union (ACU) and European Payment Union (EPU) as an example. ICUs are institutional arrangements formed by countries with the objective of settling their trade payments on a net basis while allowing intra-temporal credit. Success of ICUs like EPU was gauged by its ability to stabilize international trade of its members within a short period and served as foundation for European monetary arrangement. Other ICUs like ACU have continued to function without any formal assertion of success except that they conserve reserves. Several ICUs were established in the decade of 1960s and 1970s and accounted for 54 per cent of exports by mid-1990s covering 46 per cent of population. Few studies have looked into the possible costs and benefits of an ICU but none comprehensively examines the effects of ICUs.