Gopinath: Keeping vigil

Calcutta, April 18: The Reserve Bank of India (RBI) may take a relook at the Asian Clearing Union mechanism — set up in 1974 under the aegis of the United Nations Economic and Social Commission for Asia-Pacific — involving the central banks of India, Bangladesh, Myanmar, Iran, Pakistan and Sri Lanka.

Speaking at an interactive session on the Foreign Exchange Management Act, RBI deputy governor Shyamala Gopinath said, “ACU mechanism may be relooked into. We need to reflect on this.”

The Tehran-based ACU mechanism was virtually dismantled after an RBI notification, which said that all eligible current account transactions, including trade transactions, with Iran should be settled outside the ACU mechanism.

Under the ACU mechanism, payments for all transactions between Indian firms and entities of any of the member countries are settled by debiting to the ACU dollar account in India of a bank of the member country or crediting to the ACU dollar account of the authorised dealer maintained with the correspondent bank in the member country.

“This (the December sanction) has been imposed in view of the difficulties being faced in payments to and receipts from Iran. The country is now facing ban of the US dollars and euro. This situation has become more complex and it is engaging a lot of our attention. The matter is now with the ministry of external affairs and the government,” Gopinath said.

Following the December notification, banks have stopped paying domestic exporters any remittances from Iran and opening letter of credit account for the importers of Iranian produce.

Meanwhile, domestic importers and exporters to Bangladesh have also urged the deputy governor to allow them to settle payments outside the ACU mechanism.

“I get a feeling from this forum that exporters want the flexibility of settling payments outside the ACU mechanism,” Gopinath said.

While India is trying to find ways to settle the payment row through using some other currency, including the rupee, some quarters believe that the RBI sanction may in fact help India-Iran bilateral trade to grow because exporters and importers of both the countries can now engage in bilateral trade and payment settlement outside the ACU mechanism.

This development assumes significance given the fact that in its third summit the Brics (Brazil, Russia, India, China and South Africa) countries have mooted the idea to engage in multi-lateral trading among themselves in their own currencies and thereby reducing the dominance of the dollar and the euro.