The inquiry was made following a report published by the Indian daily Economic Times, which said Indian lenders have approached the RBI after the US Office of Foreign Assets Control (OFAC) asked banks there to refrain from processing payments linked to the ACU mechanism
US dollar banknotes are seen in this illustration taken on 10 March 2023. Photo: Reuters
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US dollar banknotes are seen in this illustration taken on 10 March 2023. Photo: Reuters
The Bangladesh Bank has sought information from the Reserve Bank of India (RBI) about a reported US restriction on making payments through the Asian Clearing Union (ACU) mechanism.
The inquiry was made following a report published by the Indian daily Economic Times, which said Indian lenders have approached the RBI after the US Office of Foreign Assets Control (OFAC) asked banks there to refrain from processing payments linked to the ACU mechanism.
However, the report did not mention any authentic source. The Economic Times also reached out to the RBI and the ACU but got no response to queries in this regard.
Following the report, Bangladesh Bank’s relevant department sent an email to the RBI for confirmation of the matter but did not get any response till filing this report, a central bank source told The Business Standard on Tuesday.
When contacted, Bangladesh Bank Executive Director and spokesperson Md Mezbaul Haque said they did not receive any instruction regarding not settling transactions through the ACU.
“There is a secretariat board in the ACU. If there were any such instruction, we would have received a letter,” he told TBS.
“Even today [26 September], the banks of our country made transactions with India and other related countries using the ACU mechanism,” he added.
The ACU is an arrangement for settling intra-regional payment transactions among the central banks of its members – India, Bangladesh, Bhutan, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka.
A senior executive of the Bangladesh Bank, wishing to remain anonymous, told TBS that they have yet to be confirmed about the US restriction but there may be a development in this regard because Iran and Bhutan are sanctioned countries under the ACU mechanism. As a result, US banks cannot identify if any payment is being made with sanctioned countries under this mechanism. All ACU payment is settled through the Federal Reserve of the US.
If the restriction becomes true then Bangladesh will have to think of alternative payment options, the central bank official said, adding that Bangladesh will lose some benefits if the ACU mechanism becomes invalid. Under the ACU, Bangladesh enjoys 60 days of credits for payment.
However, Bangladesh has to pay interest for such credit. India controls more than 90% of the ACU’s credit positions, he said.
When importers make payment through the ACU, they do not need LCs (Letters of Credit) confirmation as the Bangladesh Bank guarantees the payment, the official continued, as a result, importers do not need to spend on LC confirmation fees.
If the US restricts transactions via the ACU mechanism, then there will be no payment settlement between central banks. Individual banks will settle the payment directly with respective foreign banks, he said.
Bangladesh settles nearly $1 billion ACU payment every two months and the next payment is due in November, the central bank official added.
The ACU was established in December 1974 when the countries in the region were facing settlement difficulties, mainly due to resource constraints.
