A multi-method study about institutional designs for an International Clearing Union

Several factors were reducing trade globalization already before the Covid-19 pandemic and the war in Ukraine and further consequent weaponisation of interdependence, in particular the China–United States trade war and other trade disputes. Behind these conflicts lies a simple contradiction. Trade deficits and surpluses cancel each other out. Countries with trade surpluses tend to have savings surpluses, whereas countries with trade deficits tend to accumulate debt. The compositional fallacy occurs when it is assumed that what is possible for a single given actor at a given time is possible for all of them simultaneously. For the deficit countries, a possible individual response is to resort to unilateral measures. The problem is that this can lead to a spiral of tit-for-tat retaliations, aggravating the situation further. To avoid suboptimal and contradictory outcomes, which can have far-reaching political consequences – as the developments of the 1930s and their consequences clearly demonstrated – it is possible to set behaviour-shaping rules and principles and create more adequate common institutions. Our research project is acutely topical. Individualistic, selfregarding responses to the sense of injustices in the current trading system has already triggered a process of trade conflicts. Our research project centers on a revolutionary proposal to resolve these contradictory tendencies proposed by John Maynard Keynes already in the 1940s, and especially on contemporary versions of this proposal. Keynes’ early 1940s plans for a Clearing Union involved an impartial system for the management of currencies, and a kind of world central bank responsible for a common world unit of currency, the bancor. Obligations would be made systemic and financial positions defined against the rest of the world. Subsequent modifications and recontextualisations of the proposal have either tried to make this proposal more feasible under the late 20th or early 21st century circumstances and/or have introduced novel ethical and political principles and/or redefined the role of the world central bank. Our research project has an ambitious mixed-method design, combining qualitative and quantitative empirical approaches with normative analysis and argumentation. This future-oriented project tackles the normative underpinnings and political feasibilities of various ICU-proposals in a way that has never been done before. The knowledge produced in this project is of utmost theoretical and practical importance.

Period: September 2021 – July 2025

PI: Heikki Patomäki

Postdoc researcher: Lauri Holappa (Aug 2022-July 2025)

PhD-student: Niina Kari (Feb 2022 – July 2025)

Other researchers: Konsta Kotilainen

Funding: Academy of Finland

Publications

Kotilainen, K (2022). “Towards an International Clearing Union (at Last)? Normative Underpinnings and Elements of Institutional Design”, Helsinki Centre for Global Political Economy Working Paper, 6/2022