AI Drafter 
TaxTMI 
TaxTMI 
Memorandum of Procedure for channeling transactions through Asian Clearing Union (ACU)
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....Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/ approvals, if any, required under any other law. Yours faithfully, (D. Mishra) Chief General Manager ============= Document 1 Annex (A.P. (DIR Series) Circular No.35 dated February 17, 2010) ACM MEMORANDUM OF PROCEDURE FOR CHANNELING TRANSACTIONS THROUGH ASIAN CLEARING UNION 1. Introduction This edition of the Memorandum details the revised procedure to be followed by the AD Category-l banks for handling transactions to be cleared through Asian Clearing Union (ACU). 2. Handling of ACU Transactions All transactions to be cleared through the ACU will be handled by AD Category-I banks in the same manner as other normal foreign exchange transactions. All AD Category-l banks in India have been permitted to handle ACU transactions. AD Category-l banks may freely enter into correspondent arrangements with banks in the other countries participating in the Clearing Union. 3. Eligible Instruments of Payment The Asian Monetary Units (AMUs) is the common unit of account of ACU and be denominated as 'ACU Dollar' and 'ACU Euro', which shall be equivalent in value to one US Dollar and one Eur....
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....untries. Similarly, the Reserve Bank has also been receiving and delivering U.S. Dollar and Euro amounts for absorbing liquidity or for funding the ACU Dollar (vostro) and ACU Euro (vostro) accounts respectively, maintained by the AD Category-l banks on behalf of their overseas correspondents. Funding of ACU Dollar and ACU Euro account maintained with a correspondent bank in another ACU participant country will continue to be 3 (iii) effected by the Reserve Bank only after receiving an intimation that equivalent amount of U.S. Dollar and Euro is being credited to its account with the Federal Reserve Bank of New York, New York, and its account with the Deutsche Bundesbank, Frankfurt respectively, by the AD Category-l bank on the value date. Similarly, Reserve Bank will continue to arrange for payment of US Dollar and Euro from its accounts with the Federal Reserve Bank of New York, New York and the Deutsche Bundesbank, Frankfurt respectively, to the account of the correspondent of the AD Category-I bank, in case it has received intimation of surrender of surplus funds to the other participant Central Bank on behalf of the AD Category-l bank in India. In the case ....
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....e settled through the ACU mechanism; (b) payments which are not on account of current international transactions as defined by the International Monetary Fund, except to the extent mutually agreed upon between Reserve Bank and the other participants; and (c) such other payments as may be declared by the ACU to be ineligible for being channelled through the clearing facility. 9. Rate of Exchange for U.S. Dollar and Euro Under the revised procedure, the Reserve Bank will receive and pay U.S. Dollar and Euro from/to the AD Category- banks in respect of transactions described in paragraph 5 above and there will be no corresponding payment/receipt of Indian 5 rupees. In other words, no exchange rates will be announced for the purpose of putting through the transactions relating to the ACU, as has been the policy since 1st January 1996. 10. Hours of business The hours for receiving applications for funding of ACU Dollar and ACU Euro accounts in overseas participant countries or surrendering of surplus liquidity in the ACU Dollar and ACU Euro accounts of their overseas correspondents maintained in India will be the regular business hours of the Reserve Bank. No applic....
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.... the transfer instruction from their account with Federal Reserve Bank of New York, New York and Deutsche Bundesbank, Frankfurt to the correspondent of the AD Category-l bank. The AD Category-l bank may then arrange to credit the ACU Dollar and ACU Euro account of its correspondent bank on the value date. Correspondent banks of AD Category-l banks may also request AD Category-l banks to transfer amounts from their ACU Dollar and ACU Euro accounts to Reserve Bank for account of the Central Bank in the participating country. Requests from AD Category-l banks for repatriation of these surplus funds should be made in duplicate in form ACU-2 to DEIO, Mumbai. The acceptance of the offer will be conveyed on the duplicate copy of the letter of offer. Such offers should also be accompanied by confirmation that equivalent amount of US Dollar and Euro is being credited to Reserve Bank account with Federal Reserve Bank of New York, New York and Deutsche Bundesbank, Frankfurt respectively, on the value date. Reserve Bank will advise the participant Central Bank to provide equivalent amount of US Dollars and Euros to the concerned bank in that country. 7 (iii) The AD Category....
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....ver U.S. $/ Euro account with FRBNY/ Deutsche Bundesbank, Frankfurt (in words) to your through our correspondents on the value date. 10 10 Yours faithfully, Manager AGREEMENT ESTABLISHING THE ASIAN CLEARING UNION (As amended by the Board of Directors during various meetings up to June 2008) The central banks and monetary authorities of regional members and associate members of the UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC (ESCAP), DESIRING to establish a facility to settle payments for current international transactions within the ESCAP region on a multilateral basis, RECOGNIZING that such a facility would contribute to the expansion of trade and the promotion of monetary co-operation among their countries, RECOGNIZING further that a facility designed to promote the use of the participants' currencies would reduce the use of extra-regional currencies to settle current international transactions within the region and thereby effect economies in the use of foreign exchange and reduce the cost of making payments for such current international transactions, REALIZING that the region-wide clearing facility could co-exist and function....
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....reement enters into force. SECTION 3 - Other participants 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-third vote of all the Directors and upon such central bank or monetary authority signing this Agreement and accepting the rules, regulations and decisions of the Board of Directors. The Chairman of the Board shall determine the date on which the payments and transfers with respect to such a participant shall be included in the clearing facility. 12 CHAPTER II OPERATIONS Article IV - Unit of Account (a) The accounts of the Asian Clearing Union shall be kept in "Asian Monetary Units" (viz. ACU Dollar and ACU Euro) which may be referred to in the abbreviated form as "AMUS". (b) The Asian Monetary Units shall, with effect from 01.01.2009, and until such time as it is changed by the Board of Directors in terms of sub-clause (c) of the Article, be denominated as ' ACU Dollar' and 'ACU Euro' which shall be equivalent in value to one US Dollar and one Euro, respectively. (c) The Board ....
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....d eventual removal of this ineligibility as soon as circumstances permit. SECTION 3 - Duty to complete payment Each participant undertakes that all eligible payments made through the clearing facility to residents in its territory will be accepted and completed. SECTION 4 - Use of the clearing facility (a) A participant may require residents to make payments through the clearing facility, but such a requirement shall not be enforced in a manner that will restrict or delay the making of payments for current international transactions or create a discriminatory currency arrangement. (b) Except to the extent that a participant requires its residents to make payments through clearing facility in accordance with (a) above, the use of the clearing facility shall be optional. (c) In order to promote the use of the clearing facility, participants may adopt measures designed to provide incentives to make payments for individual transactions through the clearing facility, provided such measures shall be consistent with the participant's undertakings under the Articles of Agreement of the International Monetary Fund. Thus, for this purpose, participants may allow the conve....
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....rnational reserve assets specified by the Board of Directors for the purpose. Payments may also be made in the currency of the creditor subject to its specific consent. Article VII - Maintenance of Value And Non-Settlement of Balances SECTION 1 - Value of payments and transfers The value of any instrument of payment or transfer of a currency for the purpose of the amount to be settled through the clearing facility shall be the amount in the respective Asian Monetary Unit (ACU Dollar or ACU Euro), as well as in the case of a transfer of currency, be equivalent in the respective Asian Monetary Unit (ACU Dollar or ACU Euro) determined as of the date the transfer is considered to be made under the rules prescribed by the Board of Directors. The values of payments and transfers made and received with respect to participants 15 and the resulting positions of participants shall be recorded by the Secretary General in the respective Asian Monetary Units (ACU Dollar and ACU Euro). SECTION 2 - Delayed payments If a participant fails to make any payment notified to it by the Secretary General under Article VI within the time required, interest shall be payable by the partici....
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....“ Joint action Article VIII - Organization Representatives of the participants shall meet from time to time for the purpose of giving effect to those provisions of this Agreement which involve joint action and, generally, with a view to facilitating the operation and furthering the objectives of this Agreement. Whenever reference is made in this Agreement to the participants acting jointly, they are designated as the Board of Directors. SECTION 2 - The Board of Directors (a) Each participant shall appoint one Director and one Alternate Director to represent it on the Board of Directors. Each Director and Alternate Director shall be appointed for a term of two years, may be re-appointed, and may be replaced at any time during the term of his appointment. Each Director shall have one vote. An Alternate Director may attend the meetings but may vote only when his principal is not present or when his principal is acting as the Chairman. The Board shall elect a Chairman from among its members to serve for a period of one year, and a Vice-Chairman to serve in the absence or inability of the Chairman during the same period. (b) The Board of Directors shall meet at leas....
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....draft annual report. (d) The Secretary General shall act as the representative of the Board of Directors within the limits prescribed by the Board. (e) The Secretary General and the staff members, in the discharge of their official functions, shall owe their duty entirely to the Board of Directors and to no other authority. Each participant in the Asian Clearing Union shall respect the international charter of this duty and shall refrain from all attempts to influence any of the staff in the discharge of his functions. Article IX - Agent The Board of Directors may make arrangements with a Central Bank or monetary authority of a participant or with the Asian Reserve Bank when it is established to provide the necessary services and facilities for the operation of the clearing facility. The agreement establishing these arrangements with an Agent must be approved by a vote of two-thirds of all of the Directors. Article X - Relations With Other Organizations and Clearing Arrangements The Board of Directors may make arrangements to co-operate with other general, regional or sub-regional international organizations, or other clearing arrangements among countries within or....
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....ly make an assessment to meet the amount borrowed. (d) All the decisions taken by the Board of Directors in accordance with this section shall require the affirmative vote of two-thirds of all the Directors. 19 CHAPTER IV MISCELLANEOUS PROVISIONS Article XIII - Withdrawal from Participation SECTION 1 - Voluntary withdrawal Any participant may withdraw from this Agreement at any time by transmitting a notice in writing to the Secretary General. Withdrawal shall become effective three business days from the date such written notice is received by Secretary General unless a later date is indicated by the participant in the notice. The Secretary General shall notify all other participants as promptly as possible. SECTION 2 - Compulsory withdrawal If a participant fails to fulfil any of its obligations under this Agreement, and if, after consultations between the Board of Directors and the participant concerned, the participant fails to correct the situation, the Board may require such participant to withdraw from participation. The participant shall be deemed to have withdrawn on the date of the decision of the Board or such later date as the Board may specify. SEC....
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....tors may suspend operations by a decision of the Board taken by a vote of two-thirds of all of the Directors. All participants shall be notified immediately and no instrument of payment issued after the date of notice shall be settled through the clearing facility. (b) After a decision under sub-section (a), if the Board of Directors does not decide to resume operations within six months, all operations and other activities shall be suspended, except those necessary for the orderly liquidation and the final settlement of accounts among participants as determined by the Board. 21 CHAPTER V FINAL PROVISIONS Article XVI - Signature and Custody (a) The Executive Secretary of ESCAP shall be the depository of this Agreement and shall send certified copies of this Agreement and any amendments to it, to all regional members and associate members of ESCAP. Any amendments to this Agreement, as certified by the Chairman of the Board of Directors under the provisions of Article XIV(c), shall be appended to its text. (b) This Agreement shall be open for acceptance by signature by duly authorized representatives of Central Banks or monetary authorities of regional members or a....
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....ces and facilities for the operation of the clearing facility; (b) 'Agreement' means the Agreement establishing the Asian Clearing Union; (c) 'Asian Monetary Units' (AMUs) mean the units of accounts of the Clearing Union referred to in Article IV of the Agreement; (d) 'Board' means the Board of Directors of the Asian Clearing Union referred to in Article VIII Section I of the Agreement. (e) 'Clearing Union' means the Asian Clearing Union; (f) ‘Secretary General' includes the officer who is designated by the Agent to perform the functions of the Secretary General for the time being; (g) 'Participant' means any central bank or monetary authority which is a signatory to the Agreement and (h) 'Currency Swap' arrangement means an arrangement among the participants under which a participant becomes eligible to draw Asian Monetary Units from other participants in specified proportion and in specified circumstances for settling imbalances in clearing. 4. Ineligible payments - The following payments shall not be eligible to be made through the clearing facility: (i) payments between Nepal & India; and Bhutan & India (ii) payments which are not current international ....
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.... its ACU Dollar or ACU Euro account in that participating country, or to its central bank. In the latter case, it will request that bank to effect the remittance through the ACU mechanism. The correspondent bank will surrender equivalent amount of US Dollars or euros to its own Central Bank for remittance The participant receiving the amount will advise the participant in the country concerned to make available the equivalent amount to the concerned bank in that country. The Central Bank may, at its option, make the payment in US Dollar or Euro or in local currency. After making the payment the second participant will advise the Secretary General of the ACU to credit its account by debit to the first participant's account. (d) On receipt of the advices referred to in sub-rules (b) and (c) above, the Clearing Union shall effect the necessary transfers under advice to both the participants. 25 25 7. Exchange Rate The SDR cross-rates which are quoted by the International Monetary Fund on a daily basis shall be applied as a reference rate. In the event that the International Monetary Fund does not quote the rates, the last available rate will apply until such rates ....
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....me of the next following settlement. 9. Accounts kept by the Clearing Union The Clearing Union shall maintain two accounts (ACU Dollar and ACU Euro accounts) for each participant to which the payments advised by the participants will be debited or credited. Interest will be payable by the participants on the net debit balances and receivable on the net credit balances, calculated at the interest rate referred to in Rule 10, on the daily balances outstanding. 10. Interest (a) Interest on the net debit and net credit balance will be calculated by the Clearing Union on the daily outstanding by the product method, taking a year as comprising 360 days and shall be debited or credited to the participants' accounts at the end of each settlement period. The rate of interest applicable for a settlement period will be the closing rate on the first working day of the last week of the previous calendar month offered by the Bank for International Settlements for one month US Dollar and Euro deposits. In the event that the Bank for International Settlements does not quote rates for such deposits, the last available rate will apply until such rates become available. However, the ....