All members of the Asian Clearing Union have agreed to move towards local currency settlement in a bid to reduce dependence on the US dollar. The Asian Clearing Union (ACU) includes all the countries in South Asia, as well as Myanmar and Iran.

According to representatives from the Central Bank of Myanmar cited by Bloomberg, nine central banks with ties to the Union have agreed to settle trade in local currencies, including the Indian rupee. The same source reports that India will likely lead in the settlement of trades in the ACU, which had transactions worth USD 28.8 billion in 2021. As of May 2023, India controls nearly 93% of the ACU’s credit positions, which provides it with considerable influence in the group.

The South Asian country has been ramping up its efforts to develop trade settlement mechanisms in local currencies in partnership with other nations. These efforts aim to provide greater stability to the global financial system, internationalising the Indian rupee and minimising dependency on hard currencies such as the US dollar and the euro. Invoicing in local currencies Bloomberg reports that a formal announcement for this new plan is likely to be presented in the next few months.

The plan relies on invoicing transactions in local currencies and settling them once in two months. Some of the main advantages of invoicing in local currencies include preserving foreign exchange reserves in times of crisis for developing nations. For instance, Iran has sought trade in non-dollar currencies as a response to repeated sanctions from the US.

For countries in the ACU, the option of converting to the dollar and euro will remain on the table. These countries will also be able to invest in financial assets using excess currencies. More information about the ACU The Asian Clearing Union is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.

The primary objectives of the clearing union are to facilitate payments among member countries for eligible transactions, thereby economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade and banking relations among the participating countries. At the time of writing, the Asian Clearing Union members are the Bangladesh Bank, the Royal Monetary Authority of Bhutan, the Reserve Bank of India, the Central Bank of the Islamic Republic of Iran, the Maldives Monetary Authority, the Central Bank of Myanmar, Nepal Rastra Bank, the State Bank of Pakistan, and the Central Bank of Sri Lanka. .