How does a multilateral settlement system work?

Multilateral clearing organisations typically rely on a settlement bank where participants maintain individual accounts to which settlement obligations are posted. In large-value systems settlement generally takes place in central bank money. In retail payment systems, however, settlement is performed by either the central bank or a private correspondent bank, which means that settlement takes place in central bank money or commercial bank money respectively. The access to settlement accounts at the central bank may be either open to all institutions participating directly in clearing arrangements or limited to financial institutions satisfying specific criteria (eg institutional type, minimum payment volumes). In the latter case, financial institutions that do not have access to a central bank account settle their payments across the books of a direct participant in settlement, which, in turn, settles across the books of the central bank read less

By the 19th century, British manufactures flooded the Indian market. Foodgrains and raw materials exported from India to Britain. But the value of British exports to India was much higher than the value of British imports from India. .So, Britain had a ‘trade surplus’ with India. A trade surplus is a positive balance of trade, where a country’s exports exceed its imports. Britain used its surplus to balance its trade deficits with other countries i.e. with countries from which Britain was importing more than it was selling to. In this way, a multilateral settlement system works.This system allows one country’s deficit with another country to be settled by its surplus with a third country. India played a significant role in the late 19th century world economy by helping Britain to balance its deficits. Suggested Topics multilateral settlement read less