A Multilateral Payments Union for the Commonwealth of Independent States: Why and How?

The paper discusses the institutional arrangements of a multilateral payments union for the Commonwealth of Independent States. It starts with an analysis of the risks of a non-cooperative solution, which would lead to serious liquidity and solvency problems and thus curtail inter-republican trade by a widespread system of bilateralism. A possible solution to these problems is an internal fixed exchange rate system along the lines of the EMS. The feasibility of this arrangement depends above all on Russia's ability to pursue non-inflationary monetary and fiscal policies. If this approach is not adopted and if most republics peg their currencies to the ECU, the transactions and precautionary demand for reserves can be considerably reduced by a multilateral payments union, which acts as a common clearing house and provides a common credit facility to its members. While Russia, the prospective creditor, would have to be willing to provide a part of its multilateral surplus as a credit to debtor republics, a financial contribution of $3-4 billion from the West would be required in order to limit the burden to be borne by Russia. As the transition to world market prices for energy would lead to unsustainable current account deficits for several republics at present consumption levels, a payments union can only be introduced after the adoption of comprehensive stabilization programmes in the potential member countries. Otherwise the quotas of the union would be rapidly exhausted, and the system would cease to have a significant economic effect.