Multilateral settlement system
Topic: The Making of a Global World · NCERT: Class 10, Ch 3 "The Making of a Global World"
Meaning
In a multilateral settlement system, a country's trade deficit with one country is paid off by its trade surplus with another. A deficit means a country buys more from another country than it sells to it, and a surplus is the opposite. In the 19th century Britain bought more from countries like the USA than it sold to them. But it sold more to India than it bought from India. Britain used its surplus with India to cover its deficits elsewhere. This made India crucial to the late 19th-century world economy.
Example
India bought British cloth and other manufactured goods and exported raw cotton, indigo and food grains. Britain's surplus from this trade balanced its deficits with other countries. It also paid the "home charges", which included pensions of British officials and interest on India's debt.
Don't confuse with
- Home charges: these were payments sent from India to Britain, such as remittances, debt interest and pensions. The multilateral settlement system is the wider pattern of balancing trade among many countries.