i0 “swings.” Such pseudoconvertibility made sense only if all deliveries under this mode of settlement were mutually agreed to be considered “hard.“ In none of these three cases was there convertibility in the usual sense that this concept is understood in the West in international monetary transactions.

Exchange Rates. Exchange rates between national currencies and the TR had no apparent rational basis.“ There is evidence that, at least for some countries, exchange rates were computed as the ratio of total exports valued at domestic prices to the value in TR for some base period, which makes the exchange rate a historical “purchasing power parity” rate computed for exports. Even so, such a ratio would reflect centrally regulated trade, and not market values or comparative costs.

Mismatches of cross-rates were prominent and a natural consequence of the system. As an example, in the summer of 1987, the National Bank of Hungary’s exchange rate for CC transactions was 47 forint/$. For CMEA trade, the commercial rate was 28 forint/TR; in combination with the IBEC rate of 0.65 TR/$, the implicit forint rate under the CMEA regime was only 18 forint/$. Differences in relative prices (overpricing of Hungarian manufacturing exports and underpricing of Soviet raw materisls) and offsetting price adjustments elsewhere reduce the discrepancy, but a significant difference remains.” Macropolicies. Centrally planned economies neither have nor need a macroeconomic policy framework for managing internal and external balance. Macrobalance is maintained through central micromanagement of all transactions. In addition, the principles of the CMEA expressly excluded any obligation for international coordination or for cooperation on other than microeconomic matters as specified via bilateral treaties. Because of limitations on functions (automatic creation and contraction of aggregate TR stocks through aggregate temporary imbalances in the accounts of IBEC; the lack of currency reserves and fungibility), the common currency was unsuitable for regional monetary coordination or management. Also, the CMEA view of fiscal policy as an instrument for financing budgetary expenditures made cross-country coordination less relevant than when fiscal policy is directed at internal demand management.

Currency Links. Trade under the CMEA regime and convertible currency trade were procedurally separate. This separation frequently invites misconception. On the assumption that convertible currency is “more valuable” than TR, it would appear to be advantageous to shift hard exportables from the CMEA to CC markets. However, even if protocols were to permit this, there is no necessary gain. Under CMEA trading practices, an export reduction tends to trigger a matching export reduction by the trading partner, to avoid export surpluses and also as retaliation against breach of commitmert. This response, in turn, makes it necessary for the initiating country to counter the decline in CMEA imports with additional imports from convertible-currency sources, which requires matching export proceeds in CC. The net result may or may not be beneficial for the initiating country in terms of CC savings. The outcome depends on the real exchange ratios for products deleted from CMEA exchange.

Imported Inputs. There is a related effect via imported inputs used in export production. Hungarian data on the import content of exports appear; in Table 4. These estimates, derived from input-output data, reveal that Hungary transferred three times as much of convertible currency incorporated in exports to CMEA countries as it received in return (25.6 percent vs. 8.5 percent). While the numbers are dated, there is no reason to assume drastic change over time in Hungary’s case or