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HARD GOODS AND SOFT CURRENCIES : A NOTE ON BILATERAL PAYMENT ARRANGEMENTS: PRONAB SEN

ABSTRACT

This paper seeks to examine the economic rationality of the bilateral payments arrangement that existed between the former USSR and India, particularly in the case of commodities which were both competitive and demanded in the international markets, in a context where both countries had a marked preference for ‘hard’ currencies. It is argued that such an arrangement was not only rational for the trading partners, but also that the wider welfare effects were positive in most cases. This is contrary to popular belief which holds that such arrangements are usually to the detriment of the interests of third countries and disruptive of the international trading order. Although these arrangements have all but ceased to exist with the disintegration of the USSR, it is argued that the logic governing such arrangements applies with equal force to a number of commodities which are of importance to developing and transitional economies and which are traded between them in substantial measure.

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1.  Adviser, Planning commission, Government of India. This paper reflects the personal views
of the author and not those of the organisation to which he belongs.