Toward a More Universal Currency: The Impact of the Clearing Mechanism on Developing Economies

Toward a More Universal Currency: The Impact of the Clearing Mechanism on Developing Economies As part of a broader plan to reform the system of international finance, experts have indicated the need to modify the system of international money. They point to problems such as the difficulties faced by developing countries in obtaining hard currency needed for imports, or the flows of hot money which make the financing of long-term development projects difficult. Some have called for a form of universal currency, used only in international trade. Developing nations especially need access to a clearing mechanism which would eliminate the transaction costs associated with obtaining hard currency, and reduce the opportunity costs of holding that currency. The application of the clearing mechanism to international finance was originally promoted by John Maynard Keynes, and has been resurrected, among others, by economists of the post-Keynesian school of thought. This paper will examine the context of the original proposal for a universal currency or clearing mechanism, consider the problems of the current paradigm of international finance and how the clearing mechanism could ameliorate them, and discuss whether regional clearing unions could be beneficial to developing nations in the absence of international finance reform