This article will give an overview of ACU mechanism. How this works and what is difference between normal transaction and ACU transaction. Besides this article will explain you what transactions are permissible and what not under ACU mechanism and what is the procedure to handle ACU transaction.
What is ACU:
The foundation of the Asian Clearing Union (ACU), with headquarters in Tehran, Iran, was laid on December 9, 1974 but the ACU started its operations a year later in November 1975.
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 main objectives of the clearing union are to facilitate payments among member countries for eligible transactions, thereby promoting trade and banking relations among the participating countries.
Most of the people have confusion about the terminology of “Inter” and “Intra”.
Inter means between or among groups and Intra means within or inside. For example – Interstate bus service are bus services that cross and go through different states whereas an Intrastate bus service which connects various cities within one state. Here intra-regional transaction refers transaction happens within ACU member countries.
Member countries of ACU:
The members of the Asian Clearing Union are as follows:
1. Bangladesh – Bangladesh Bank
2. Bhutan-Royal Monetary Authority of Bhutan
3. India-Reserve Bank of India
4. Iran-Central bank of Islamic Republic of Iran
5. Maldives -Maldives Monetary Authority
6. Myanmar -Central Bank of Myanmar
7. Nepal -Nepal Rastra Bank
8. Pakistan -State Bank of Pakistan
9. Sri Lanka -Central Bank of Sri Lanka
Objectives of ACU:
The objectives of the ACU are:
1) To provide a facility to settle payments, on a multilateral basis, for current international transactions among the territories of participants. The multilateral basis means the practice of co-ordinating national policies in group of three or more states.
2) To ensure the effective use of currencies used by the participants during the transaction.
3) To ensure the co-operation among the participants on a monetary basis
4) To facilitate currency exchange methods among the participants.
Eligibility to participate:
1) Participation in the Asian Clearing Union shall be open to the central bank or monetary authority of each regional member or associate member of ESCAP as well as central bank or monetary authority of non-ESCAP members.
2) Participation in another clearing group or arrangement is not permitted by participation in the Asian Clearing Union.
Eligible payments and transfers:
The payments that are eligible to be made through the clearing facility are payments:
1. From a resident in the territory of one participant to a resident in the territory of another participant
2. Related to import and export of goods and services , as well as payments mutually agreed between two or more participants
3. Permitted by the country in which the payer resides
4. All instruments of payment denominated in AMUs (ACU dollar, ACU euro and ACU yen) may be used to effect payment through the clearing facility.
5. Payment for exports and /or import transaction between ACU member countries on deferred payment terms.
6. With effect from July 1, 2016, all eligible current account transactions including trade transactions in “Euro” are permitted to be settled outside the ACU mechanism.
The payments not eligible for settlement though the Asian Clearing Union include the following: –
1) Payments between Nepal and India and Bhutan and India except exports and imports of goods. Payments towards exports and imports should be settled outside ACU mechanism.
2) Payments that are not on account of export/import transactions between ACU member countries. Payments other than export/import e.g. reimbursement of expenses, Royalty payment should not be settled through ACU mechanism.
3) All eligible current account transactions including trade transactions with Iran should be settled in any permitted currency outside the ACU mechanism.
4) Trade transactions with Myanmar may be settled in any freely convertible currency.
What is the procedure for settlement of ACU transactions?
Majority of transactions, as possible, should be settled directly through the accounts maintained by AD Category-l banks with banks in the other participating countries and vice versa. It means that payment should be routed through corresponding bank not through direct transfer in case of export/import. In case of transaction other than export/import should be settled through direct remittance.
How would you identify that ACU transaction happens as per ACU guideline?
All cross border/international wire transfer takes places through SWIFT under MT103. There are some fields where you can identify whether it follows ACU mechanism.
Field 52a- Name of the ordering Institution i.e. payer with whom agreement was signed.
Field 59a- Name of the beneficiary i.e. receiver.
Field 70- Remittance information i.e. import of goods/ travelling expense etc.
Field 72- Sender to receiver information i.e. Name of the corresponding bank
Out of above fields field 70 and field 72 plays a vital role to determine the authenticity of ACU transaction.
If the remittance is towards import/exports then field 72 will assure that remittance has been taken place as per ACU guideline. If the remittance is other than import/exports and field 72 shows the name of the corresponding bank name then it is evident that transaction did not follow ACU guideline. In that case AD bank has right to return the fund.
Similarly field 70 shows the nature of transaction based on which AD bank would ask for evidence of transaction. If this is towards export then following details have to be provided:
a) Shipping bill
b) Date of shipment
c) Country of remitter
d) Place of final destination of goods
e) Importer exporter code
f) Purpose of payment
g) Purpose code
In case of other remittance (other than import/export) same details have to provided except following:
a) Country of remitter
b) Purpose of payment
c) Purpose code
In addition to the above copy of the invoice may need to be submitted to match the purpose declared, purpose code and the country of remitter.