The objective of the clearing agreement is to balance the exchange of products over time between two governments without having to transfer funds, by using an agreed-on value of trade, tabulated in nonconvertible "clearing account units." The contracting parties establish an exchange ratio of their respective currencies to determine the amount of goods to be traded. Usually, the exchange value is figured in U.S. dollars. For example:
Morocco and the Soviet Union agree to exchange capital equipment and fresh oranges for a new phosphate plant. Morocco might prefer to buy the equipment elsewhere, but it has little foreign exchange, so it buys from the country that will take oranges in payment rather than hard currency. But Morocco needs the equipment more than the Soviets need the oranges. At settlement date, Morocco corrects the deficit by either paying the difference in hard currency or hoping the Soviets will enter a new agreement and permit the deficit to be carried over to the next contract.
Russia rationed hard currency for copier imports. So Britain's Rank Xerox is making copiers in India for sale to Moscow under Russia's clearing agreement with India.
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