ASIAN CLEARING UNION

1. Introduction

Asian Clearing Union (ACU) is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.
The ACU was established in December 1974 when the region's countries faced settlement difficulties, mainly due to resource constraints.
The ACU started its operations a year later in November 1975. Over the years, the ACU has displayed a sense of true commitment, consolidated and nurtured throughout its operations.
By applying sound strategies, it achieved pre-determined objectives to facilitate settlement on a multilateral basis, to promote the use of participants’ currencies, to improve monetary and banking cooperation, 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.

2. Objectives of the Asian Clearing Union

To provide a facility to settle payments, on a multilateral basis, for current international transactions among the territories of participants;
To promote the use of participant's currencies in current transactions between their respective territories and thereby affect economies in the use of the participant's exchange reserves;
To promote monetary cooperation among the participants and closer relations among the banking systems in their territories and thereby contribute to the expansion of trade and economic activity among the countries of the ESCAP region; and
To provide for currency SWAP arrangements among the participants to make Asian Monetary Units (AMUs) available to them temporarily.

3. Asain Clearing Union Organisation

Each participant appoints one director and one alternate director. The Board elects a chairman and vice-chairman from among its members.
The Board meets at least once a year. All decisions of the Board of Directors are taken by a majority of the votes of all Directors unless a special majority is required by the Agreement.
The Board of Directors appoints a secretary General to conduct the business of the ACU. The Secretary-General acts as the representative of the Board of Directors.
The Board of Directors may make arrangements with a central Bank or monetary authority of a participant to provide the necessary services and facilities for the operation of the clearing facility.
The Board has accepted the offer of the Central Bank of Iran to act as an agent for the union.

4. Membership Quota

Membership in the ACU does not impose a financial burden (quota) on members as all expenses associated with running the ACU Secretariat are borne by the Central Bank of Iran the Agent Bank of the Union since the inception of the ACU.

5. Asian Clearing Union Measures and Achievements

The results of long-term initiatives to raise the Union's achievements are evident from the following facts:

The rapid expansion of trade: Since the inception of the ACU, transactions have experienced remarkable growth. In 2020, the volume of transactions (one way plus accrued interest) amounted to USD 9,302.22 million. Every month, the average transactions stood at USD 775.19 million.
Timely settlement: Under the ACU Procedure Rules, the debtor members should pay up their dues in convertible currencies within four working days of the receipt of the notice of payment from the Secretary-General. There has been no default by any member so far in meeting its obligation for the settlement of its net position within the stipulated time.
Establishment of multi-currency settlement system: Based on the approval of the ACU Board of Directors at the 37^th Meeting in Myanmar (June 2008), the accounts of the ACU are held in “Asian Monetary Units” (AMUs), comprising ACU dollar and ACU euro with effect from January 1, 2009. Since then, the participants are authorized to settle transactions either in US Dollars or Euro within the ACU mechanism. In July 2019, according to the Board of Directors' approval at the 48^th Meeting in Bhutan, the accounts of the ACU were held in AMUs comprising of ACU dollar, ACU euro, and ACU yen with effect from January 1, 2020. As a result, the participants were permitted to commence settlement of Japanese Yen in addition to US Dollar and Euro transactions through the ACU mechanism.
Revision of the Agreement Establishing the ACU and Procedure Rules: In tandem with developments and challenges ahead, the ACU Board of Directors amended the Agreement Establishing the ACU and Procedure Rules.
Quality management and information technology: Believing in the fact that developing online access to information would be a worldwide requirement; the ACU has developed both the quality and quantity of the system. To accelerate the process of presenting services and to make the dispersion of information smoother, the participants were enabled to access their ACU accounts daily through the Internet.
Expansion of the ACU: Based on a decision made at the 36^th Board of Directors Meeting in Bangladesh (May 2006), the expansion of the Union was put at the top of its agenda. Eligibility to participate in the ACU shall be open to the central bank or monetary authority of each regional member or associate member of ESCAP. However, according to "ACU Membership Application Policy and Procedure" which was approved by the ACU Board of Directors at the 39^th Meeting in Bhutan (June 11, 2010), a central bank or monetary authority that is eligible to participate and is not an original participant may apply to the Board of Directors to become a participant and be admitted as a participant if the Board so decides by a two-thirds vote of all the Directors for each regional member or associate member of ESCAP and by unanimous vote of all the Directors for each non-ESCAP members and upon such central bank or monetary authority signing this Agreement and accepting the rules, regulations, and decisions of the Board of Directors.

Nevertheless, there is still a long way to go. The ACU challenges are strengthening, smoothening, and streamlining the mechanism to cope with fast-paced developments in the international markets.

For Prelims: Asian Clearing Union (ACU), United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), Currency SWAP arrangements, Asian Monetary Units (AMUs).

For Mains: 1. What is Asian Clearing Union? Discuss the objectives and measures of the Asian Clearing Union.

Source: asianclearonion.org

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