DP458 | A Multilateral Payments Union for Eastern Europe?

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01/09/1990

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Abstract

The paper analyzes the role of a multilateral payments union (PU) between East European countries (EEPU) as an intermediate solution in the process to full convertibility. After a description of the main functions of a PU, which is based on the historical model of the European Payments Union, it identifies the conditions that justify a PU with trade restrictions vis-a-vis outside countries: above all the existence of unsustainable trade deficits under full convertibility. The paper compares the underlying conditions in East European countries with the situation of the EPU member countries and concludes that an EEPU does not have the potential to repeat the successful performance of the EPU. In addition, it shows that prospective fundamental current account deficits of East European countries can only be estimated after a comprehensive concept of the international monetary integration of East European countries has been developed.