ASIAN CLEARING UNION (PROCEDURE) RULES

1. These rules have been adopted by the Board of Directors of the Asian Clearing Union in terms of Article VIII Section 2( f ) of the Agreement Establishing the Asian Clearing Union and shall be called the Asian Clearing Union (procedure)Rules.

2. These rules shall come into force on such date as may be notified by the Board of Directors of the Asian Clearing Union.

3. DEFINITIONS: In these rules, unless there is anything repugnant in the subject or context:

(a) "Agent" means the participant central bank or monetary authority with whom the Board has arranged to provide the necessary services and facilities for the operation of the clearing facility;

(b) "Agreement" means the Agreement Establishing the Asian Clearing Union;

(c) "Asian Monetary Unit" (AMU) means the common unit of account 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 1 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 and India;
• (ii) Payments which are not current international transactions as defined by the Articles of Agreement of the International Monetary Fund, except to the extent mutually agreed upon between two or more participants.

Participants have agreed that payments arising on account of import/export transactions on deferred payment terms will not be considered as ineligible payments.

5. ELIGIBLE INSTRUMENTS OF PAYMENT AND THE CURRENCY IN WHICH THEY ARE TO BE DENOMINATED: All instruments of payment denominated in AMUs or US dollars, may be used to effect payment through the clearing facility. Settlement of such instruments will be made by the commercial banks through operations of the accounts referred to in Rule 6.

6. CLEARING OPERATIONS:

(a) The participants will permit the banks in their respective countries to maintain ACU dollar accounts with their correspondent banks in the other participating countries. All payments other than ineligible payments will be settled by the banks concerned through these accounts. The operations on these accounts shall be governed by the prevailing Exchange Control Regulations and such other directions, rules, regulations or guidelines as the participants may issue or specify from time to time.

(b) When a commercial bank desires to fund its ACU dollar account with its correspondent bank in another participating country, it may purchase the required amount of ACU dollar either from a local commercial bank having a surplus in that participating country or from its central bank. In the latter case, it will surrender equivalent amount of US dollars or, at the option of the Central Bank, the equivalent in the local currency to its own Central Bank for remittance through the ACU mechanism. The participant receiving the amount will advise the participant in the country concerned to make available the amount in US dollars to the concerned bank in that country. 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.

(c) When a commercial bank desires to repatriate funds from its ACU dollar account with its correspondent bank in another participating country, it may sell the desired amount of ACU dollar either to a local commercial bank which desires to fund its ACU dollar 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 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 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.

7. CURRENCY SWAP ARRANGEMENT: A participant desirous of availing of the swap facility as defined in Rule 3 (h) should request the Secretary General in such format as he prescribes. The nature and scope of swap arrangement will be as described hereunder:

(a) "Eligibility" Subject to sub-rule (d) of this rule any participant in deficit at the end of a settlement period shall be eligible to avail of the facility. Participants whose countries have special payment arrangements between themselves will not be eligible to avail of this facility from each other.

(b) "Entitlement" Every eligible participant shall be entitled to the facility from every other participant upto 20% of the average gross payments made by it through the ACU mechanism to other participants during the three previous calendar years. A participant shall not, however, draw more than its overall deficit at the end of a settlement period. The drawal by each participant from each other participant shall be in the same proportion as its overall deficit bears to its maximum entitlement.

(c) "Rate of Interest" The rate of interest chargeable on each drawal would be equal to LIMEAN on US dollars for the period of 2 months. The reference LIMEAN will be of Barclay's Bank , London, at 11.00 a.m. applicable for the concerned value date. If the rate is not available from Barclay's Bank, the Secretary General shall ascertain it from any other London clearing bank at his discretion and if it is not available from any such bank, the rate of Barclay's Bank applicable for the immediately preceding value date will apply.

(d) "Other Conditions" A participant may draw under the swap arrangement for a period of 2 months at a time. Such a participant shall not be entitled to draw under the arrangement at the time of the next following settlement.

8. ACCOUNTS KEPT BY THE CLEARING UNION: The Clearing Union shall maintain an account in AMUs 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 9 , on the daily balances outstanding.

9. INTEREST:

(a) Interest on the net debit and net credit balance will be calculated by the Clearing Union on the daily outstandings 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 Euro-dollar 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 Board may decide upon a substitute rate if necessary.

(b) In the case of delayed payments referred to in Article VII section 2 of the Agreement and default referred to in section 3 of the same Article, interest for the period of delay or default shall be calculated by the Clearing Union at:

• (1) One percent per annum over the rate for the relevant settlement period or periods under sub-rule (a), or;
• (2) One percent per annum over the rate applicable on the day of default under sub-rule (a), whichever is higher.

10. NOTIFICATION OF NET POSITION AT THE END OF SETTLEMENT PERIOD:

At the end of each settlement period, the Secretary General shall notify each participant by telex or cable of its net position and accrued interest, and of the amounts it shall pay or receive from other participants.

11. SETTLEMENT OF BALANCES:

(a) Each debtor participant, within four working days of the receipt from the Secretary General of the notice of the amounts to be paid, shall make the payment in US dollar or in any other mutually acceptable currency, under telex or cable intimation to the Secretary General.

(b) If settlement is desired to be effected in a currency other than the US dollar, the participants shall, by mutual agreement, decide on the exchange rate to be made applicable for such settlement.

12. OBLIGATION TO ACCEPT NET POSITION ADVISED BY THE SECRETARY GENERAL:

The net position at the end of the settlement period, as notified by the Secretary General shall be accepted by every participant as correct and settlement shall be made accordingly. The participant shall, however, have the right to bring any discrepancy detected in such position to the notice of the Secretary General as soon as possible thereafter for eventual rectification and further settlement if necessary. Such rectification shall be made at the same rate of exchange at which the original settlement was made.

13. DEFAULT: In the event that a participant fails to make any payment notified to it by the Secretary General under rule 10 within the time specified, the provisions of Article VII section 3 of the Agreement shall apply.