ABSTRACT
The transition to a market-oriented economy means that decentralized decisions by households and firms are organized by market forces. The basic requirement for an international payments system is that credits acceptable to exporters are available to importers. In a closed economy such as the former Soviet Union, residents of each republic accepted ruble-denominated liabilities of domestic banks in trade with residents of other republics. The stock of money needed to facilitate trade depends upon the willingness of transactors to extend credit to one another. In a well-functioning payments system, credit markets allow individual traders to economize on cash balances by keeping track of debit and credit positions and making cash payments only after all possible netting of bilateral payments. In an international payments mechanism the same netting of payments is accomplished in the foreign exchange markets and international credit markets.
