Asian Clearing Union

Asian Clearing Union

Subject: Economy

Section: External Economy

In view of difficulties being faced by exporters in getting payments from crisis-hit Sri Lanka, the RBI on Thursday allowed settlement of trade transactions in Indian rupee outside the Asian Clearing Union (ACU) mechanism.

Details:

In March, the government had guaranteed a term loan of $1 billion extended by State Bank of India to Sri Lanka for financing purchase of essential goods by the island nation from India.

Under the new arrangement, financing of export of eligible goods and services from India would be allowed subject to conditions and whose purchase may be agreed to be financed by SBI under the agreement.

Asian Clearing Union (ACU) mechanism:

The Asian Clearing Union (ACU) was established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional cooperation.

The main objective of the clearing union is to facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries. Thus, it aims:

• To facilitate transactional settlement, on a multilateral basis, for the international transactions involved
• To ensure the effective the use of currencies used by the participants during the transactions,
• To ensure the cooperation among the participants on a monetary basis
• To facilitate currency exchange methods among the participants.

Members-The Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU.

What is the unit of settlement of ACU transactions?

The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’, ‘ACU Euro’ and ‘ACU Yen’, which is equivalent in value to one US Dollar, one Euro and one Japanese Yen respectively.

All instruments of payments under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts, ACU Euro Accounts and ACU Yen Accounts, which should be distinct from the other US Dollar, Euro and Japanese Yen Accounts respectively maintained for non ACU transactions.

What are the transactions which are eligible to be settled through the ACU?

• for export / import transactions between ACU member countries on deferred payment terms.
• not declared ineligible as mentioned below.

What are the payments that are not eligible to be settled through the ACU?

• Payments between Nepal and India and Bhutan and India, exception being made in the case of goods imported from India by an importer resident in Nepal who has been permitted by the Nepal Rastra Bank to make payments in foreign exchange. Such payments may be settled outside ACU mechanism; and
• Payments that are not on account of export / import transactions between ACU members countries except to the extent mutually agreed upon between the Reserve Bank and the other participants; and
• All eligible current account transactions including trade transactions with Iran should be settled in any permitted currency outside the ACU mechanism until further notice.