The role of clearing in central bank cooperation: From the Scandinavian Monetary Union to the Bank for International Settlements

Kerstins Rum Session 2: Central banking – a science or an art? organized by Lars Fredrik Øksendal and Anders Ögren


Anders Ögren, Hans-Michael Trautwein


In our recent article on central bank cooperation and lender of last resort in the Scandinavian Monetary Union (Ögren & Trautwein 2022) we found that in the context of a common currency operated by the three independent central banks of Denmark, Norway and Sweden the most important workhorse that emerged was the clearing system between the central banks. We could show that this system was also in operation after the “classical” gold standard had been abandoned in 1914, at least until the year 1930. Without the possibility to develop the issue further within the scope of the article we see some evidence that the SMU clearing system complemented and to some extent replaced the clearing carried out by private financial agents. Moreover, we have now found evidence that it was carried on even after the abandonment of the interwar period gold standard in 1931. Not only did this central bank clearing cooperation within the SMU gain interest from central bankers and financial agents abroad; our material also suggests possible links between the experiences of the SMU clearing system and the development of the Bank for International Settlements into an international facility for central banks when the mission of the BIS shifted from its original role of organizing the settlements of German war reparations to an agency for co-ordinating monetary policies to counteract the Great Depression. Setting our focus on links between the SMU and the BIS in the 1920s and 1930s, we aim at elucidating the role of clearing in the development of international central banking. We combine practical, political, and theoretical perspectives that were developed (rather) disparately in contemporaneous operations, debates and research, as well as in more recent academic literature: o At the practical level, clearing in the SMU (and perhaps also within the BIS network) was operated “in the machine rooms” of central banking, apparently with little or rare attention by governing bodies, public debates or academic research. o At the political level, clearing was now and then debated as a matter of trade-offs between international cooperation and national autonomy, but rather detached from its actual workings. o At the level of “high theory”, clearing and connected issues of the settlement of debts, cumulative changes in the price level and financial stability have played a key role in views on the evolution of the international monetary system in the tradition of Wicksell, Keynes, and Hicks (in particular). The historical contexts of the SMU and the BIS, and the connections between them, serve as a case for combining the three perspectives and for testing the ‘Theory of Monetary History’ in the Wicksell-Keynes-Hicks connection.


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