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 researchers: Lauri Holappa (August 2022-August 2023); Konsta Kotilainen (Septermber 2023-July 2025)
PhD-researchers: Konsta Kotilainen (September 2021-December 2021); Niina Kari (Feb 2022 – July 2025)
Funding: Academy of Finland
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As part of the Academy of Finland-funded research project “How to overcome tendencies toward trade wars? A multi-method study about institutional designs for an International Clearing Union”, an international workshop on ICU proposals was held at the University of Helsinki on 15-16 March 2024. In addition to our core research team comprising Heikki Patomäki, Niina Kari, Lauri Holappa and Konsta Kotilainen, the participants included both senior and junior researchers who have written extensively on the international monetary system in general and the international clearing union proposals in particular. This very prominent group of scholars included Jan Kregel, Matías Vernengo, Massimo Amato, Lucio Gobbi, Ann Pettifor, Adrien Faudot, Guido Montani, and Eric Helleiner.
A key goal of the project is to revitalise debate regarding an ICU in the current world political conjuncture characterised by divisions and conflict. The papers of the workshop approached the topic of ICU from a variety of angles ranging from technical aspects of multilateral clearing and payment systems to broader theoretical and normative issues of how best to expand economic policy space and for what purpose. Deep concerns for ecological sustainability and the looming climate catastrophe generated some reflections on autarkic and integrationist visions. Many contributions addressed the topical question of the decline in global dollar dominance. Relatedly, it was asked how the international monetary system should be reformed and what kind of a clearing union ought to be established. It should also be noted that while the possibility of an ICU raises several important theoretical and normative questions, the workshop’s interest in the subject did not neglect practical considerations in the form of the question, “if there are good reasons for realising an ICU, how can and how should it be implemented?”.
While the participants share a longstanding interest in international monetary reform, there are also differences in perspectives. A couple of the participants viewed the ICU as primarily a technical arrangement allowing for smooth and effective cross-border netting and clearing. In contrast to this relatively minimal conception of a clearing union, others defended a more substantial conception which includes an impartial system for the management of currencies; mechanisms for sanctioning in an equal manner surpluses and deficits; and a kind of world central bank governing a common currency. While these differences are indeed important, the two conceptions can be rendered mutually compatible to the extent that the more technically oriented conception is seen as providing a potential infrastructure for an ICU proper. Even more ambitious forms of a union may include for instance an international investment fund (different versions of which were part of the original plans by Keynes, Kalecki, and Schumacher).
Another key difference between the presenters has to do with regional versus global clearing. Some of the participants argued for regional clearing arrangements, perhaps intending to subsequently extend these arrangements further and thereby, make them, in effect, interregional. Others were critical towards such a regional approach and argued for a more global approach instead. The debate on these two approaches involved questions about both their political feasibility and broader normative viability: Would a regional or otherwise partial approach to building an ICU be more feasible than the more global approach? Could it be easier to realise the needed kind of reform first within individual regions? Or would a regional approach rather pit the regions against each other? – after all, the ongoing trend towards deglobalisation is driven partially by increasing hostilities between the West and groups such as BRICS. Could a “coalition of the willing” style approach to gradually building a clearing union help to overcome such divisions and pave the way toward new globally efficacious institutions?
A lot of time was spent also on discussing the suitable institutional context for alternative monetary arrangements. Could parts of the clearing union be advanced by reforming existing institutions, most notably the IMF, or it is more reasonable to create new institutions? Ultimately, also these debates concern feasibility and “political realism”. Is it possible to reform the IMF, given half a century of efforts to do so and highly asymmetric power relations within the organisation? How reasonable is it to strive for piecemeal changes that would not solve the key problems of the current monetary system? On the other hand, from where could a progressive “coalition of willing countries” emerge and what would prevent it from becoming a separate bloc? While such grand issues were of course not fully settled, the discussions at the workshop helped to clarify the key issues and facilitate the further development of papers.
The next step is to revise and finalise the papers presented in the workshop in light of these discussions. The goal is to publish the collection of papers either as a special issue in a leading journal or as an edited book.
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