Understanding the Asian Clearing Union: Mechanisms, Members, and Benefits

Introduction

The Asian Clearing Union (ACU) is a major multilateral payment facility intended to facilitate trade settlements between member nations in South and Southeast Asia. It was created in 1974 through a United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) effort and has since become an integral part of monetary cooperation in the region, lowering transaction costs and boosting efficiency in cross-border trade.

What is the ACU Mechanism?

ACU serves as a clearinghouse in the regional and central bank level with the central office in Tehran, Iran. Its fundamental mandate is to enable net multilateral settlement of qualified cross-border payments among member central banks. With the capability to net members' transactions over a settlement period agreed upon—e.g., each two months—the ACU effectively reduces per-transaction costs of foreign exchange.

Key Features of the ACU

Multilateral Netting: Only the net amount is paid, minimizing the foreign exchange reserves required to the barest minimum.
Less Transaction Costs: The system lowers participants' costs by reducing currency exchange and maximizing efficiency in settlement.
Regional Focus: All transactions are between ACU member states alone.

ACU Member States and Central Banks

As of 2025, the following are the central banks that are members of the ACU:

Country	Central Bank	Year Joined
Bangladesh	Bangladesh Bank	1974
Bhutan	Royal Monetary Authority of Bhutan	1999
India	Reserve Bank of India	1974
Iran	Central Bank of the Islamic Republic of Iran	1974
Maldives	Maldives Monetary Authority	2009
Myanmar	Central Bank of Myanmar	1977
Nepal	Nepal Rastra Bank	1974
Pakistan	State Bank of Pakistan	1974
Sri Lanka	Central Bank of Sri Lanka	1974

Objectives of the ACU Mechanism

Facilitate Multilateral Settlement: The ACU will act as a vehicle of settlement for current international transactions to reduce the utilization of hard currency and increase the utilization of local currency.
Improve Use of Regional Currency: The platform encourages use of the member currency, hence reducing reliance on world reserve currencies like the US dollar and euro.
Encourage Monetary Cooperation: By encouraging closer relationships between member central banks, the ACU encourages monetary policy coordination and financial stability.
Ease Currency Exchange: The ACU standardizes cross-border currency exchange, making trade settlement more efficient.
Ease Currency Swap Arrangements: Members gain access to liquidity through currency swap facilities, fostering regional monetary cooperation.

Key Vocabulary

Inter-regional: Exchanges between different global regions.
Intra-regional: Those transactions conducted between the member group of the ACU, with all ACU transactions being intra-regional and channeled through central banks.

Eligibility and Participation Requirements

Who are Eligible to Join?

Membership is available for monetary authorities or central banks of ESCAP members and also non-ESCAP countries who have been chosen. The members are not permitted to participate in another clearing union concurrently.

Allowed and Ineligible ACU Transactions

Allowed Transactions:

Trade-Related Payments: Import and export payments of goods and services among ACU member residents.
Mutually Agreed Payments: Other mutually agreed payments, provided they are in line with the paying country's regulations.
Current Account Transactions: Transactions in ACU Dollar, ACU Euro, or ACU Yen.
Deferred Payment Terms: Export/import on deferred terms between ACU members.
Euro Settlements Flexibility: Euro current account transactions can be settled outside the ACU system with effect from July 2016.

Ineligible Transactions:

India-Nepal and India-Bhutan Transactions: Settlement of transactions between India and these countries (other than goods export/import) must be done outside the ACU system.
Non-Trade Transactions: Non-trade transactions like royalties and reimbursement are not permitted through the ACU.
Transactions with Iran: In the presence of international sanctions, eligible current account transactions with Iran ought to be cleared outside of the ACU arrangement.
Transactions with Myanmar: Transactions with Myanmar can be paid for with any convertible currency and not necessarily through the ACU.

Recent Amendments and Regulatory Updates

2025 Regulatory Changes

The Reserve Bank of India (RBI) revised the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023, under Notification No. FEMA 14(R)(1)/2025-RB, dated February 10, 2025.

Key Change of Most Importance: Remittances between residents of ACU member nations apart from Nepal and Bhutan must be remitted through the ACU or as instructed by RBI.

These amendments, introduced under Section 47 of the Foreign Exchange Management Act, 1999 (FEMA), will seek to allow more cross-border transactions under the ACU framework with regulatory compliance.

India-Maldives Local Currency Settlement (2025)

India and Maldives, in a recent Memorandum of Understanding, have agreed to enable bilateral trade using their local currencies (Indian Rupees and Maldivian Rufiyaa) in addition to the ACU mechanism. India's status as the Maldives' largest trading partner gets reinforced even more by this deal.

How Does an ACU Transaction Work?

Differences from Standard International Transactions

Standard Transactions: Usually settled bilaterally and get converted to reserve currencies of the world, which involves higher costs and repeated foreign exchange outflows.
ACU Transactions: Multilaterally net settled, which decreases the number of fund transfers, conserves foreign exchange, and lowers settlement risk.

Step-by-Step ACU Transaction Process

Routing Payments: Payments are routed via accounts of Authorized Dealer (AD) Category-I banks in other ACU countries. Payments are routed via correspondent banks to comply with ACU regulations.
SWIFT Message Identification: Cross-border ACU transactions employ only SWIFT MT103 messages. The following fields in the SWIFT message are defined:
- Field 52a: Ordering Institution (payer's bank)
- Field 59a: Beneficiary Name

Field 70: Remittance Information (e.g., purpose of payment)
Field 72: Receiver-to-Sender Information

Documentation and Verification: Conformant documentation varies with the nature of the transaction and is crucial to facilitate ACU compliance.
Identifying Genuine ACU Transactions: Proper completion of SWIFT message fields is critical. Non-compliant payments may be rejected by the AD bank.

Real-World Example (2024)

One Indian drug exporter engaged in a transaction with the export of drugs to Sri Lanka. It made the payment in ACU Dollars via the ACU mechanism, with the exporter's bank making necessary checks of documentation. This saved on costly currency exchange and settlement risk.

Best Practices and Compliance Tips

Validate Counterparty Eligibility: Verify if the counterparty country is a member of ACU and the transaction type is eligible.
Documentation: Keep comprehensive and accurate documentation for all ACU transactions.
Stay Updated: Periodically check RBI circulars and ACU notifications to be aware of eligible currencies and procedures.
Compliance: Follow strictly current ACU rules and FEMA guidelines to avoid rejections or compliance failures.

Recent Developments: Digitalization and ACUMER Platform

In Dhaka, in February 2025, the ACU Standing Technical Committee discussed the deployment of ACUMER, which is an online platform for cross-border payments and even digital currency for settlement. The member states were encouraged to implement ACUMER by March 2025 to further enhance the efficiency and security of cross-border payments.

Conclusion

The ACU mechanism is an important infrastructure for reducing transaction costs, conserving foreign exchange, and enhancing trade among South and Southeast Asian countries. Exports, imports, and financial institutions can benefit maximally through this regional arrangement towards an integrated Asian economy by becoming familiar with the eligibility criteria, documentary requirements, and settlement procedures.