To: Members of the Council
Sub: Asian Clearing Union (ACU) Mechanism – Indo-Sri Lanka trade
Dear Member,
The Reserve Bank of India has issued Notification No. RBI/2022-2023/89 dated 8th July, 2022 on the Asian Clearing Union (ACU) Mechanism for Indo-Sri Lanka trade.
ACU is a payment arrangement where the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.
Need for Clearing Unions : The need for the formation of clearing unions was felt due to foreign exchange shortages, the breakdown of the gold standard, and the collapse of the international capital markets forcing the Governments to introduce controls on foreign exchange and foreign trade on the one hand and to sign bilateral trade and payments agreements on the other.
Establishment of Asian Clearing Union (ACU) : ACU was established in December 1974. The Central banks and the monetary authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently members of the ACU. Its objectives was to facilitate settlement on a multilateral basis, to promote the use of participants’ currencies, to improve monetary and banking co-operation, and to expand trade and economic activity among the countries of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) region.
Establishment of multi-currency settlement system in ACU: The accounts of the ACU are held in “Asian Monetary Units” (AMUs), comprising ACU dollar, ACU euro, and ACU yen.
RBI decision of July 8, 2022 comes after it had, on May 19, 2022 whereby it allowed Trade with Sri Lanka to be settled in Rupees outside the ACU mechanism until further notice.
Members may kindly make a note of the above.
Thanking you,
Yours faithfully,
S. BALARAJU
EXECUTIVE DIRECTOR
