The Hindu Business Line : India, Iran have Asian Clearing Union option for transactions

Making it simple
From January 1, 2009, ACU participants, including India and Iran, would have the option to settle their transactions either in ACU Dollar or ACU Euro.

K. Ram Kumar

Mumbai, Jan. 1 Indian exporters to Iran and Iranian exporters to India no longer need fret over the US embargo on all dollar transactions involving Iranian banks and Iranian companies. By resorting to the Asian Clearing Union (ACU) mechanism for settlement of import-export transactions, exporters from the two countries can not only realise their receivables but also sidestep the US banking system altogether.

From January 1, 2009, ACU participants, including India and Iran, would have the option to settle their transactions either in ACU Dollar (equivalent in value to one US dollar) or ACU Euro (equivalent in value to one Euro). The Reserve Bank of India’s latest circular indicates as much.

Thus, Indian importers and exporters can legally and effectively skirt the US-imposed ban on making payments to Iranian exporters and receiving payments from Iranian importers. As per RBI’s latest data, in the April-May 2008 period, India’s exports to Iran amounted to $299.2 million while Iran’s exports to India amounted to $1.907 billion.

According to the RBI, Category-I Authorised Dealer Banks in India are allowed to open and maintain ACU Dollar and ACU Euro accounts with their correspondent banks in other participating countries and all eligible payments are required to be settled by the concerned banks through these accounts.

About ACU

Asian Clearing Union (ACU) was floated in 1975 under the aegis of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) for expansion of intra-ACU trade; encourage use of participants’ currencies for transactions, thereby economising on the use of their foreign exchange reserves; and monetary co-operation and closer relations between the banking systems. ACU has eight members — India, Iran, Bangladesh, Bhutan, Myanmar, Nepal, Pakistan, and Sri Lanka. It has its secretariat at Tehran.

Import-export transactions denominated in US dollars between two countries are usually settled through correspondent banks in the US. However, with the US Office of Foreign Assets Control prohibiting all US dollar transactions, directly or indirectly, involving all Iranian banks and companies and also the settlement of third-country trade transactions, all Iranian entities have been denied access to the US financial and commercial system. This prohibition has hit Indian exporters hard as they cannot receive payments denominated in US dollars from Iranian importers.

Netting of payments

“The ACU mechanism is a simple arrangement between two countries, entailing netting of payments and receipts arising out of import-export transactions. Netting significantly reduces the number of transactions as well as the currency risk,” said an official with a public sector bank.

In fact, the State Bank of India had written to the Foreign Exchange Dealers’ Association of India asking the latter to caution its member-banks about the US embargo. SBI cautioned that “as underlying funds favouring the Iranian banks would be blocked by the US financial system, banks are advised to exercise caution and not to direct US dollar transactions to our domestic foreign/US offices involving Iranian banks.”

By channelling transactions through the ACU, which is the simplest form of payment arrangement whereby the members settle payments for intra-regional transactions among the participating central banks on a multilateral basis, Indian exporters selling goods and services to Iran would be able to realise their receivables without much ado.

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