A situation where trade between any two countries has to balance, or any imbalance has to be financed by credits arranged directly een the two countries. This is contrasted with multilateral trade, which requires only that trade with all other countries combined should either balance, or be financed by overall credit from other countries. Bilateral trade has the disadvantages of barter at the national level. It is more efficient to be able to run surpluses with some trade partners and deficits with others, and to be able to other country. For a country with a convertible currency, bilateral surpluses or deficits on either current or capital account are of no importance; only overall or multilateral balances matter.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|