Finance

The Formation and Objectives of Asian Clearing Union

The Asian Clearing Union (ACU) is an effort towards securing regional co-operation amongst the members of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP) and thereby contributing to the expansion of trade and economic activity among the countries of the region. It is a system for clearing payments among the participant countries on a multilateral basis.

At present the countries participating in the ACU are 9; i.e. Bangladesh, India, Iran, Myanmar, Nepal, Pakistan, Sri Lanka, Bhutan and Maldives . The clearing operations commenced on 1st November 1975. The Asian Clearing Union (ACU), with headquarters in Iran was established on December 9, 1974.

Objectives of Asian Clearing Union

ACU has been established with the following objectives:

(a) To facilitate payments for current international transactions with ESCAP region on a multilateral basis;

(b) To reduce the use of extra-regional currencies to settle such transactions by promoting the use of the participant’s currencies;

(c) To effect thereby economies in the use of foreign exchange and a reduction in the cost of making payments for such transactions;

(d) To contribute to the expansion of trade and promotion of monetary co-operation among the countries of the area.

Operations of Asian Clearing Union

All the transactions between the participating countries barring the following are eligible for routing through the ACU:

(a) Payments between Nepal and India

(b) Payments which are not on account of current international transactions as defined by the Articles of Agreement of the International Monetary Fund, except to the extent mutually agreed upon between two or more participants;

(c) Such other payments as may be declared by the Asian Clearing Union to be ineligible for being channelized through the clearing facility.

For transactions between the participating countries, the instruments of payment should be denominated in Asian Clearing Union Dollar (ACU Dollar). An ACU dollar is equivalent in value to the US dollar.

For receiving payment for exports or making payment for imports, the authorized dealers (ADs) have been permitted to open ACU dollar accounts with their correspondents in other participant countries. Similarly, ADs have been allowed to open ACU dollar accounts in their books on behalf of their correspondents.

Payment for export from India is received by debit to the ACU dollar accounts of the commercial banks of other participant countries maintained with ADs in India or by credit to the ACU dollar accounts of ADs maintained with correspondent banks in other participant countries. The reverse is the case for imports into India from any of the ACU countries.

While quoting rates to their clients for transactions denominated in ACU dollar, ADs should not differentiate between the ACU dollar and US dollar. Further the forward premia quoted for US dollar against rupee is also applicable for the ACU dollar.

The ACU dollar accounts arc funded either by purchase of ACU dollar from a local bank having a surplus in that participating Country or from the Reserve Bank a. In the latter case, for example, the ACU dollar accounts maintained by ADs in India with commercial banks in Sri Lanka, ADs in India will arrange to credit equivalent amount of US dollar to the account of the Reserve Bank with Federal Reserve Bank of New York on the value date. The Reserve Bank will arrange to credit equivalent amount in ACU dollar to the accounts of the ADs in Sri Lanka through the central bank of Sri Lanka on the value date.

The excess liquidity in the ACU dollar accounts is repatriated by ADs by selling to a local commercial bank which desires to fund its ACU dollar account in that participating country concerned or by instructing their correspondents in the participant countries to surrender ACU dollars to the central banks of the concerned countries.

In the latter case, upon instructions from that central bank, the Reserve Bank arranges to credit US dollars to the account of the AD in India with the correspondent in New York through the Federal Reserve Bank of New York.

For the purpose of funding or repatriation of excess liquidity, the Reserve Bank receives and pays the US dollar without exchange of any Indian rupee. The Reserve Bank does not undertake any forward purchase of the ACU dollar from the ADs.

The settlement of transactions between the participant member countries takes place at the end of 2 months by payment of US dollars by net debtor country to the country which has net credit position. The account at the ACU headquarters is maintained in Asian Monetary Unit (AMU) which is equivalent to one ACU dollar or one US dollar.

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