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Asian Clearing Union

Rahul Bansal (Finalist) (35929 Points)

08 January 2010

Asian Clearing Union

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12 Replies

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

1. What is the Asian Clearing Union (ACU)?

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), as a step towards securing regional co-operation. The ACU is a system for clearing payments among the member countries on a multilateral basis.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

2. Who are the members of the ACU?

The central banks and monetary authorities of Iran, India, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka and Myanmar are the members of the ACU.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

3. Where are the instructions, relating to the ACU, available?

The detailed procedural instructions for channeling transactions through the ACU have been issued, by the Reserve Bank, as a separate booklet titled memorandum ACM.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

4. How are the ACU transactions to be handled by authorised dealers in India?

All transactions to be cleared through the ACU are handled by authorised dealers in the same manner as other normal foreign exchange transactions. All authorised dealers in India have been permitted to handle ACU transactions.

Authorised dealers may freely enter into correspondent arrangements with banks in the other countries participating in the Clearing Union.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

5. What is the unit of settlement of ACU transactions?

The Asian Monetary Unit is the common unit of account of ACU and is equivalent in value to one U.S. dollar. The Asian Monetary Unit may also be denominated as ACU dollar. All instruments of payment are required to be denominated in Asian Monetary Unit. Settlement of such instruments may be made by authorised dealers through operation on ACU dollar Accounts.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

6. What is the procedure for settlement of transactions?

i. Large part of the transactions as possible are settled directly through the accounts maintained by authorised dealers with banks in the other participating countries and vice versa; only the spill-overs in either direction are required to be settled by the Central Banks in the countries concerned through the Clearing Union.

ii. Authorised dealers are permitted to settle commercial and other eligible transactions in much the same manner as other normal foreign exchange transactions. The procedures for opening letters of credit, negotiation of documents, etc., in respect of trade in convertible currencies are applicable for trade routed through the ACU mechanism.

iii. To facilitate settlement of transactions through the ACU in this manner, authorised dealers may freely open with their branches/correspondents ‘ACU dollar accounts’. These must be kept distinct from U.S. dollar accounts, if any, maintained for settlement of transactions taking place outside the Clearing Union. The term ACU dollar is specifically being used in order to identify the use of U.S. dollar in relation to ACU transactions. Otherwise there is no distinction value-wise between ACU dollar and the U.S. Dollar.

iv. Authorised dealers should ensure that at all times the balances maintained in the ACU dollar accounts are commensurate with the requirements of their normal exchange business and funds rendered surplus should be repatriated to India regularly.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

7. Can authorized dealers open ACU Dollar Accounts in the names of all banks in all member countries including Pakistan without the prior approval of Reserve Bank of India ?

Yes, authorized dealers can open ACU Dollar Accounts in the names of all banks, in all member countries, including Pakistan, without the prior approval of Reserve Bank of India.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

8. What is the mechanism for settlement through the ACU?

i. Reserve Bank of India undertakes to receive and pay U.S. dollars from/to authorised dealer for the purpose of funding or for repatriating the excess liquidity in the ACU dollar accounts maintained by the authorised dealer with their correspondents in the other participating countries. Similarly, the Reserve Bank of India has also been receiving and delivering U.S. dollar amounts for absorbing liquidity or for funding the ACU dollar (vostro) accounts maintained by the authorised dealers on behalf of their overseas correspondents.

ii. Funding of an ACU dollar account maintained with a correspondent bank in another ACU participant country will continue to be effected by Reserve Bank only after receiving an intimation that equivalent amount of U.S. dollar is being credited to its account with the Federal Reserve Bank of New York, New York, by the authorised dealer bank on the value date. Similarly, Reserve Bank will continue to arrange for payment of US dollar from its account with the Federal Reserve Bank of New York to the account of the correspondent of the authorised dealer in New York, in case it has received intimation of surrender of surplus funds to the other participant central bank on behalf of the authorised dealer bank in India.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

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

Transactions that are eligible to be made through the ACU are payments –

a. from a resident in the territory of one participant to a resident in the territory of another participant

b. for current international transactions as defined by the Articles of Agreement of the International Monetary Fund

c. permitted by the country in which the payer resides

d. payments which are in compliance with FEMA '

e. for export/import transactions between ACU member countries on deferred payment terms.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

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

The following payments are not eligible to be settled through ACU –

a. payments between Nepal & India and Bhutan & 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 Rashtra Bank to make payments in foreign exchange. Such payments may be settled through the ACU mechanism

b. payments which are not on account of current international transactions as defined by the International Monetary Fund, except to the extent mutually agreed upon between Reserve Bank and the other participants.

c. such other payments as may be declared by the Asian Clearing Union to be ineligible for being channelled through the clearing facility.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

11. Are all eligible transactions between member countries required to be settled through the ACU ?

Yes.

Rahul Bansal (Finalist) (35929 Points)
Replied 08 January 2010

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