How does a multilateral settlement system work?



By the 19th century, British manufactures flooded the Indian market. Foodgrains and raw materials exported from India to Britain. But the value of British exports to India was much higher than the value of British imports from India. .
So, Britain had a ‘trade surplus’ with India. A trade surplus is a positive balance of trade, where a country’s exports exceed its imports. Britain used its surplus to balance its trade deficits with other countries i.e. with countries from which Britain was importing more than it was selling to. In this way, a multilateral settlement system works.
This system allows one country’s deficit with another country to be settled by its surplus with a third country. India played a significant role in the late 19th century world economy by helping Britain to balance its deficits.