Clearing agreements

Clearing agreement: an agreement between two or more states under which foreign trade is settled through mutual accounting. The importer pays in its own currency to an authorized bank in its own country. The exporter receives money in its own currency at home. The authorized banks keep clearing accounts, and at the end of the period the countries reconcile the balance and settle it with deliveries, currency or credit.

Amounts on clearing accounts are often kept in a notional unit of account, called the clearing currency. Such agreements were widely used in the 20th century, including in the USSR’s trade with other countries.

Types

• bilateral and multilateral;
• with a mandatory balance, when deliveries in both directions must match;
• with a permitted balance within a limit (the swing), above which the debtor pays the difference;
• with the balance settled in currency, in goods or by deferral.

Pros and cons

Pros for states: savings of freely convertible currency and less dependence on foreign banks. Cons: trade is tied to a pair of countries, balances build up for years, the rate of the unit of account is negotiated, and goods have to be selected to fit the offset.

What it means for a company

Clearing agreements are concluded by states, not companies. A Russian importer or exporter does not settle under them directly. It pays under its own contract by an ordinary transfer through a bank or an agent, and this payment goes through currency control.

Netting, offsetting between companies, is similar to the idea of clearing. But offsetting with a foreign counterparty is possible only in the cases permitted by currency regulation.

For paying a supplier today, something else matters more: whether the route to the supplier’s country is working. For each payment, we select an agent from our pool whose route is open: Route selection.