Reserve Bank of India recently allowed settlement of

Solution

· Asian Clearing Union (ACU) was established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional co-operation. The main objective of the clearing union is to facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries. The Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU. · In view of difficulties being faced by exporters in getting payments from crisis-hit Sri Lanka, the Reserve Bank of India allowed settlement of trade transactions in Indian rupee outside the Asian Clearing Union (ACU) mechanism. · In March, the government had guaranteed a term loan of USD 1 billion extended by the State Bank of India (SBI) to Sri Lanka for financing purchase of essential goods by the island nation from India. · Sri Lanka is facing its worst economic crisis since gaining independence from Britain in 1948. · The crisis has been caused in part by a lack of foreign currency, which means the country cannot afford to pay for imports of staple foods and fuel, leading to acute shortages and very high prices.