Bangladesh issues precautionary measure against Sri Lanka, SL trade at risk

COLOMBO (News 1st) - The Central Bank of Bangladesh last week issued a circular advising all authorized dealers, including banks, to refrain from transactions with Sri Lankan banks through the Asian Clearing Union (ACU) system.

The move has been made in response to the "self-motivated decision by the Central Bank of Sri Lanka (CBSL) 
to remain temporarily suspended from ACU mechanism with effect from October 14th".

Accordingly, all authorized dealers have been advised not to do any trade and trade related transactions with Sri Lanka through the ACU mechanism.

The Asian Clearing Union was created among the South Asian Nations in order to provide trading facilities among the South Asian Nations, plus Iran and Myanmar as members in 1974. 

Within the ACU, all eligible transactions between member countries are required to be settled through the Asian Clearing Union. The unit of settlement of ACU transactions is a common unit of account of ACU, which is equivalent to one USD.

In case of importation of materials into a country, it would be debited to the account of that specific country at the Asian Secretariat, and the balance is settled every two months through the ACU in hard currency.

With this new move, it would halt the possibility of conducting any transactions between Bangladesh and Sri Lanka through the ACU. 

However, when New1st inquired on the matter from former Deputy Governor of the Central Bank of Sri Lanka Dr. W.A. Wijewardena, he stated that Sri Lanka's withdrawal from the ACU is doubtful. 

The former CBSL Deputy Governor rationalized that what could have happened is that Bangladesh has taken a precautionary measure against Sri Lanka, due to the outstanding balance of 1.2 billion USD, which Sri Lanka owes to India. 

This is being deferred every time the amount comes up, Wijewardena said. 

Bangladesh may have taken this action as a precaution due to Sri Lanka's foreign exchange crisis and in order to protect its customers, the former Deputy Governor stated.

He added that Sri Lanka would have to pay its outstanding balance of 1.2 billion to the ACU if it was to withdraw. 

Dr. Wijewardena also said that if similar steps are taken by other countries within the ACU, Sri Lanka's opportunities to do trading with the 10 countries within the ACU will be completely cut off.

"This can be perceived as a very serious matter for Sri Lanka, due to the present shortage of foreign exchange in the country, this might adversely affect Sri Lanka's ability to do international trade with the ACU member countries," he added.