Counter Trade Mechanisms

Paper Summary:

This paper explains that counter trade mechanisms come in many different forms; the most common form, used especially among lesser-developed countries, involves businesses exchanging commodities without using money, with a bank managing the exchanges. The author describes other forms of counter trade, including buy-back, getting partial cash and partial goods payment for services or good offered; offset, selling a high-dollar contract of equipment to a company in another country, which, in return, agrees to purchase a high-dollar contract of goods back from the country; and bilateral trading agreements between foreign governments. The paper relates that, although there are benefits, there are risks with this form of exchange mechanisms; therefore, it is important to have an agreement in place that meets the legal requirements of both countries involved.

From the Paper:

"When a country has freely convertible currency it means that people, both residents and nonresidents of the country, are able to buy an unlimited supply of currency. Conversely, a country is considered to have nonconvertible currency when people, whether residents or nonresidents of the country, are unable to convert foreign currency. In between being a nonconvertible and a convertible country regarding foreign currency is externally convertible. Externally convertible means that nonresidents of the country can freely convert their foreign currency in unlimited amounts."

More papers on Counter Trade Mechanisms:

• Research Paper # 92276 : "Dollar Hegemony and World Trade Adjustment"
• Research Paper # 92053 : "Dollar Hegemony and World Trade Adjustment"
• Persuasive Essay # 96170 : "Transparency in Trade Negotiations"

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