The agreement which gave birth to the ACU, after a considerable period of efforts and discussions sponsored by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), was signed by the central banks and monetary authorities of India, Islamic Republic of Iran, Nepal, Pakistan and Sri Lanka in December 1974. The ACU started its operations a year later in November 1975 with its headquarters in Tehran. Bangladesh and Myanmar joined the union as sixth and seventh members in 1976 and 1977, respectively, Bhutan joined to ACU on December 9, 1999. The ACU functions under a Secretary General responsible to the Board of Directors and The Central Bank of the Islamic Republic of Iran acts as the Agent Bank. Among the objectives of the agreement, there is an emphasis on (i) The expansion of intra-ACU trade that would contribute to the growth of the region, (ii) The use of participants' currencies in the current transactions and thus economies in the use of their foreign exchange reserves, and (iii) Monetary co-operation and closer relations between banking systems. Starting from September 1989, the ACU also included a currency swap arrangement among its operational objectives.

The following clauses, as contained in the Agreement Establishing the Asian Clearing Union and their implementation of the operational characteristics of the ACU.

(i) The account of the ACU are kept in a common unit of account designated as the Asian Monetary Unit (AMU). The value of one AMU is equivalent to one US Dollar.

(ii) Settlement of the balances and accrued interests are made at the end of each two monthly period. In other words, accrued interest is included in the calculation of the net amounts to be paid and received.

(iii) Interest is paid by net debtors and transferred to net creditors on daily balances outstanding between settlement dates. The rate of interest is determined by the Board of Directors, subject to change from time to time, on the basis of the rates in major financial centers.

(iv) Each participant is notified of its net position at the end of each settlement period and debtors make the payments within four working days of the notice in international reserve assets. Payments may also be made in the currency of the creditor subject to its consent.

(v) In the event the balance of a debtor remains unpaid after fifteen days from the date it was due, the participant is deemed to have defaulted.

(vi) The payments between Islamic Republic of Iran and Pakistan were not eligible for inclusion in the clearing facility until November 1990. The Indian payments with Nepal and Bhutan are still considered ineligible to be made through the clearing facility.

(vii) Until the end of 1985, trade in petroleum and petroleum products were not channeled through the clearing system, as these products were considered ineligible for clearing purposes. Since then, trades in these items are included in the clearing scheme.

(viii) A participant may require residents to make payments through the clearing facility, but such a requirement should not restrict or delay the payments for international transactions or create a discriminatory currency arrangement. The use of the clearing facility is otherwise optional. In 1983, five of the seven participant countries, excluding India and Myanmar, made the channeling of eligible transactions through the ACU compulsory. India and Myanmar followed suit in 1984.

Assessment of the Record and Achievements of the ACU

Over these years the ACU has not experienced a default. While many of the other development country payment unions have witnessed arrears problem, such as the one in the Caribbean area which was forced to cease its operations, the fact that the ACU has continued to function without default is an indication that it has binding, strict but simple rules of operation that guarantee the prompt settlement of the financial balances.

Asian Clearing Union in 2006 marked the completion of 31 years of the functioning, during 31 years of operation the ACU facilitated smooth and easy trading among member countries in the region, since its inception in 1975.

During this period the economic policies and the environment in which the ACU was originally designated have changed. There has been a considerable growth in trade among the ACU countries. The volume of transactions has increased from US Dollars 25.7 million in 1976 to US Dollars 12,049.84 million in 2006.

During the past 31 years of the ACU activities, the economic situation in most of the ACU member countries has undergone a change, this necessitated changes in the ACU clearing mechanism as well.

In 1995 in order to review the existing procedures of the ACU with a view to strengthen, smoothen and streamline, the Board of Directors appointed a consultant to re-appraise the whole operating system of ACU, the recommendations of consultant for overcoming bottlenecks were approved by the Board and became operative from the beginning of 1996.

The total volume of trade (Exports + Imports) has been routed through the ACU, during its life, amounted to US Dollars 141.27 billion in 2006.

Membership Quota

Membership in ACU does not impose any financial obligation or membership quota, all expenses and cost of running the ACU Secretariat which handles all operations and activities of the ACU has been covered by the Central Bank of I.R. of Iran as the Agent Bank since the inception of the ACU.

Concluding Remarks

The ACU has shown a successful performance on several ways since it started operations at the end of 1975. Firstly, it has not experienced a default, while many of the developing country clearing unions suffered from this problem. Secondly, the rate of growth of clearing trade has been quite high. The advantages of clearing trade, as opposed to non-clearing trade, contributed to this high growth. However, there were other growth raising factors such as (i) The inclusion of trade in petroleum and petroleum products in the clearing scheme since the end of 1985, (ii) The compulsoriness of trade among the members to go through the clearing system after 1983, and (iii) The inclusion of trade between the Islamic Republic of Iran and Pakistan in the clearing system since the end of 1990. Thirdly, although there have been persistent debtors in the ACU system, their negative net balances have not been large. More importantly, the creditor countries have alternated in time. In other words, there has not been a "structural creditor problem" in the ACU that might have had a limiting effect on trade.