The financial integration of Latin America and the Caribbean has been a goal pursued for decades by the countries in the region. The idea behind this integration is to promote economic development and strengthen financial stability through cooperation and coordination among Latin American countries. The current currency hierarchy places a national currency, the US dollar, as the international reserve currency, while the currencies of underdeveloped countries are considered non-convertible. Therefore, bilateral trade relations are affected by monetary policy decisions of a third country, naturally affected by domestic issues. Thus, the quest for more regional monetary integration could enhance resilience to international shocks and boost trade and investment in these countries. A payment clearing system would make some headway in expanding sovereignty and strengthening these countries' governance over their own socio-economic development, reducing the constraints imposed by the volatility of the international financial market.

One of the initiatives implemented in the region was the Regional Clearing Unitary System (SUCRE), which operated as a common unit of account to settle bilateral trade transactions between member countries, including Bolivia, Cuba, Ecuador, Nicaragua and Venezuela. This system sought to replace the use of the US dollar and to reduce the transaction costs associated with it. However, SUCRE did not fully achieve its objectives. There were several challenges that did not facilitate its effective implementation, one of the main ones being the lack of confidence in the initiative and the differences in the economic and monetary policies of the member countries. In addition, the lack of financial infrastructure and the limited participation of other countries.

Another example of financial integration in Latin America is the Reciprocal Payments and Credits Agreement (CPCR), created by the Latin American Integration Association (ALADI) with the aim of facilitating payments and trade transactions between member countries. The CPCR functions as a multilateral clearing mechanism, where participating countries can settle their debts and credits using a common unit of account, thus reducing the costs associated with foreign currency transactions. The CPCR has proven to be more successful than the SUCRE in terms of financial integration, currently has 12 member countries participating and continues to operate.

Despite the progress achieved through SUCRE and CPCR, financial integration in Latin America still faces significant challenges. One of the main challenges is the lack of harmonisation of fiscal and monetary policies across countries, as well as the lack of financial infrastructure and economic volatility in the region.

In this regard, it is important to consider extra-regional experiences that can serve as references, with their best practices, to help overcome various implementation difficulties. For example, Asia has the Asian Clearing Union (ACU), which is a multilateral payment arrangement that periodically offsets debits and credits accumulated by each member against other members in the process of trade and other transactions.

These multilateral arrangements for clearing or payments facilitate the use of national currencies, thereby easing members' exchange restrictions. The ACU was established in 1974 and has nine members: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka. According to the latest statistics, in 2020, the volume of transactions (one-way plus accrued interest) recorded at the ACU Secretariat reached US$ 9,302.22 million, reflecting a decrease of 14.63% compared to 2019. Total transactions (including collections, payments and accrued interest) channelled through the mechanism amounted to US$ 18,604.4 million.

Another mechanism to consider is the Pan-African Payment and Settlement System (PAPSS), established in 2005 by the African Development Bank and the African Central Bank and aims to improve the efficiency and safety of payment systems on the African continent. The PAPSS operates a real-time gross settlement system that allows participating banks to settle their transactions in an expeditious and secure manner.

In addition to facilitating financial transactions, both ACU and PAPSS play a significant role in promoting the economic integration of their regions. By providing a common platform for clearing payments, these organisations foster collaboration among member countries and promote intra-regional trade and investment.

In summary, in order to achieve greater financial integration in Latin America, it is relevant to learn about the experiences implemented in other regions and how they have managed to overcome the various existing obstacles. In this connection, the Permanent Secretariat of SELA, in view of the importance of this issue and in compliance with Programme II: Trade Facilitation - Activity 5 “Workshop on the implementation of a regional payment clearing system from a comparative perspective with Europe and Asia" of its Work Programme for 2022-2026, proposes a face-to-face meeting with experts on the aforementioned issues to deepen the discussions and presentations on the various aforementioned experiences. Financial integration requires strengthening cooperation among member countries and promoting the harmonisation of fiscal and monetary policies, as well as greater investment in financial infrastructure and greater participation of Latin American countries in financial integration mechanisms.

Consequently, SELA considers that the issue should be dealt with in depth, but it should be initially conceptualised from an academic perspective that allows it to be further developed from a practical perspective, gathering experiences that have been applied in different parts of the world, especially in Europe, as a first example of the deepening of financial integration that allows this region to formulate a regional alternative to international trade.

• To explore and exchange experiences on the different proposals or alternatives to make independent international trade viable, such as regional and extra-regional experiences, on initiatives aimed at facilitating trade transactions by implementing payment clearing mechanisms.
• To determine, through best practices, the feasibility, benefits and advantages of payment clearing mechanisms.
• To discuss the need for and the importance of establishing new payment clearing mechanisms for strengthening intra-regional trade.

Public organisations involved in the execution of international transactions, as well as academia and the public sector, whose objective or activities are aimed at the promotion of export sectors.

The framework of the XXVII International Congress on the Latin American Centre for Development Administration (CLAD)

Date: 22 November 2023

Time: 15:00 to 16:30

Modality: In person / virtual

Venue: Havana Convention Centre

Languages: Portuguese and Spanish.