European Payments Union

The EPU was created in the context of post-war reconstruction and the Marshall Plan. Its primary goal was to overcome the bilateral trade restrictions and currency inconvertibility that hampered European recovery. By establishing a multilateral clearing system, the EPU allowed member countries to settle balances in a common unit of account, the European Unit of Account (EUA), thereby promoting trade liberalization and economic integration.¹

The EPU operated through the Bank for International Settlements (BIS) as its agent. Each member had a quota, and monthly surpluses and deficits were offset against each other. Settlements were made partly in gold or dollars and partly through credit extended to debtor countries. This system provided automatic short-term financing, reducing the need for bilateral agreements and encouraging the removal of quantitative import restrictions.²

The EPU successfully facilitated a significant expansion of intra-European trade, with trade volumes rising substantially during its operation. It also laid the groundwork for the European Monetary Agreement (EMA) of 1958, which replaced the EPU after most Western European currencies achieved external convertibility. The EPU is widely credited with easing the transition to a more open and integrated European economy.³

One lesser-known aspect is the role of the EPU in fostering the European Coal and Steel Community (ECSC), as the success of the EPU encouraged deeper integration. Additionally, the EPU's credit mechanism was innovative, as it combined elements of a clearing union with a credit facility, a model later studied for other regional arrangements. The EPU also included a 'structural disequilibrium' clause that allowed for special assistance to countries facing persistent deficits, such as France and the United Kingdom.⁴

European Unit of Account

The unit of account used by the EPU for clearing transactions, equivalent to a fixed amount of gold.

Bank for International Settlements

The international financial institution that served as the agent for the EPU.

Multilateral clearing

A system where multiple countries offset their trade surpluses and deficits against each other, reducing the need for bilateral settlements.