Payments Agreement, Intergovernmental

an agreement between states establishing the conditions and procedure for payments and settling of accounts in foreign trade and other operations. These agreements have proliferated since the 1930’s in connection with the collapse of the gold standard, which ended the exchange of paper money for gold, and as a consequence of the elimination of free convertibility of currencies. The use of payments agreements was also stimulated by the introduction of foreign exchange restrictions in most capitalist nations, when central banks or specially designated banks were becoming the principal agents for foreign exchange operations overseas.

Intergovernmental payments agreements list the types of payments, the procedure for opening and operating accounts, and the currency in which payments are to be made. They also specify the method of liquidating indebtedness and name the banks to be entrusted with the opening and settling of accounts. Such agreements are concluded between governments and are signed by authorized representatives, such as ministers of foreign trade, ministers of economics, and ambassadors. Each agreement stipulates when it is to come into legal force and the period during which it will be in effect, usually three to six years in agreements concluded by the USSR with other countries. The agreement can be terminated upon written notification by one of the parties.

According to the character of the payments, intergovernmental payments agreements may be nonclearing, clearing with free or restricted conversion of the balance into freely convertible hard currencies or gold, and purely clearing (see alsoCLEARING and INTERNATIONAL ACCOUNTS).

Nonclearing agreements are usually concluded between a nation with a freely convertible hard currency and a country with currency that is not freely convertible. Payments between these nations are carried out in freely convertible currencies. As a rule, the payment arrangements of the developed capitalist countries are regulated by such agreements. Purely clearing agreements were used in the 1960’s and early 1970’s chiefly in the arrangements of the developing countries. The conditions and procedures for the payments between states are regulated not only by independent payments agreements but also by provisions of other agreements, such as agreements on trade and navigation.

Before 1964, payments related to foreign trade and other operations between the members of the Council for Mutual Economic Assistance (COMECON) were regulated predominantly by bilateral clearing-type payments agreements. An insignificant portion of the payments was made on the basis of trilateral agreements and the Agreement of Multilateral Clearings, concluded in 1957. Since 1964, payments between the COMECON countries have been regulated within the framework of the International Bank of Economic Cooperation by the Agreement on Multilateral Accounts in Transfer Rubles.

Payments agreements between COMECON countries and other socialist countries are bilateral and usually of the clearing type.

The socialist countries have various types of payments agreements with the capitalist and developing countries. For example, the USSR has nonclearing agreements with Austria, Belgium, Norway, Sweden, Japan, and a number of other developed capitalist nations. At the end of the 1960’s, the USSR had similar agreements with a number of developing countries, including Burma, Indonesia, Cameroon, Libya, and Nigeria.

Since the beginning of the 1970’s, the USSR has gradually shifted to payments in freely convertible hard currency with many developing countries, such as Brazil, Colombia, Lebanon, and Tunisia.

At the beginning of the 1970’s, the USSR had clearing agreements with free or restricted conversion of the balance with Algeria, Afghanistan, Bangladesh, Ghana, Egypt, Iceland, Somalia, and other countries.