Settle trade transactions with Sri Lanka in any currency outside ACU mechanism: RBI

The Reserve Bank on Friday said all eligible trade transactions with Sri Lanka may be settled in any permitted currency outside the Asian Clearing Union (ACU) mechanism.

India has been providing line of credit to Sri Lanka, which has been facing an acute financial crisis.

''... it has been decided that all eligible current account transactions including trade transactions with Sri Lanka may be settled in any permitted currency outside the ACU mechanism until further notice,'' the RBI said in a circular addressed to banks on Indo-Sri Lanka trade.

The instructions have come into force with immediate effect.

The central banks and the monetary authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently members of the ACU.

ACU was established with its headquarters at Tehran, Iran in 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 economising on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.

Sri Lanka is going through the worst economic crisis since its independence from Britain in 1948, and needs to obtain at least USD 4 billion to tide over the acute shortage in foreign exchange reserves.

The country had announced in April that it is suspending nearly USD 7 billion foreign debt repayment due for this year, out of the about USD 25 billion due through 2026. Sri Lanka's total foreign debt stands at USD 51 billion.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)