MD.

ABUL KHAIRAT(TUSHAR) ,
Mail address: tusharkhan15@yahoo.com
MD. ABUL KHAIRAT(TUSHAR) ,
Mail address: tusharkhan15@yahoo.com

(a)Asian Clearing Union (ACU):

Asian Clearing Union (ACU) is a payment arrangement whereby the participants settle
payments for intra-regional transactions among the participating central banks on a net
multilateral basis. The main objectives of the clearing union are to facilitate payments
among member countries for eligible transactions, thereby economizing on the use of
foreign exchange reserves and transfer costs, as well as promoting trade and banking
relations among the participating countries.

Asian Clearing Union (ACU) is a payment arrangement whereby the participants settle payments for intra-
regional transactions among the participating central banks on a net multilateral basis.

The objectives of the ACU are:

(1) To provide a facility to settle payments, on a multilateral basis, for current international transactions
among the territories of participants;

(2) To promote the use of participants' currencies in current transactions between their respective territories
and thereby effect economies in the use of the participants' exchange reserves;

(3) To promote monetary cooperation among the participants and closer relations among the banking
systems in their territories and thereby contribute to the expansion of trade and economic activity among
the countries of the ESCAP region; and

(4) To provide for currency SWAP arrangement among the participants so as to make Asian Monetary
Units (AMUs) available to them temporarily.

ACU Measures and Achievements

The ACU was established in December 1974 when the countries in the region were facing settlement
difficulties, mainly due to resource constraints. The ACU started its operations a year later in November
1975. Over the years, the ACU has displayed a sense of true commitment, consolidated and nurtured
throughout its operations. By applying sound strategies, it achieved pre-determined objectives to facilitate
settlement on a multilateral basis, to promote the use of participants’ currencies, to improve monetary and
banking cooperation, and to expand trade and economic activity among the countries of the ESCAP region.

The results of long-term initiatives to raise the Union achievements are evident from the following facts:

(1) Rapid expansion of trade: Since the inception of the ACU, transactions have experienced a remarkable
growth. In 2007, volume of transactions (one way plus accrued interest) amounted to USD 15,830.5 million
depicting 31.4 percent growth compared to the preceding year. On a monthly basis, the average
transactions stood at USD 1,319.2 million compared to USD 1,004.2 million last year.

(2) Timely settlement: Under the ACU Procedure Rules, the debtor members should pay up their dues in
convertible currencies within four working days of the receipt of the notice of payment from the Secretary
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General. There has been no default by any member so far in meeting its obligation for the settlement of its
net position within the stipulated time.

(3) Establishment of multi-currency settlement system: Based on the approval of the ACU Board of
Directors at the 37th Meeting in Myanmar (June 2008), the accounts of the ACU are held in “Asian
Monetary Units” (AMUs), comprising ACU dollar and ACU euro with effect from January 1, 2009. Since
then, the participants are authorized to settle transactions either in US dollar or Euro within the ACU
mechanism.

(4) Revision of the Agreement Establishing the ACU and Procedure Rules: In tandem with developments
and challenges ahead, the ACU Board of Directors amended the Agreement Establishing the ACU and
Procedure Rules.

(5) Quality management and information technology: Believing in the fact that developing an online access
to information would be a worldwide requirement; the ACU has developed both the quality and quantity of
the system. In order to accelerate the process of presenting services and to make dispersion of information
smoother, the participants were enabled to access their ACU accounts on a daily basis through the Internet.

(6) Expansion of the ACU: Based on a decision made at the 36th Board of Directors Meeting in
Bangladesh (May 2006), the expansion of the Union was put at the top of its agenda.

Nevertheless, there is still a long way to go. The ACU challenges are to strengthen, smoothen, and
streamline the mechanism to cope with fast pacing developments in the international markets.

Membership Quota
Membership in the ACU does not impose a financial burden (quota) on members as all expenses associated
with running the ACU Secretariat are borne by the Central Bank of Iran─ the agent bank of the Union ─
since the inception of the ACU.

ACU Organization
Each participant appoints one director and one alternate director. The Board elects a chairman and a vice-
chairman from among its members. The Board meets at least once a year. All decisions of the Board of
Directors are taken by a majority of the votes of all Directors unless a special majority is required by the
Agreement.

The Board of Directors appoints a Secretary General to conduct the business of the ACU. The Secretary
General acts as the representative of the Board of Directors.

The Board of Directors may make arrangements with a central bank or monetary authority of a participant
to provide the necessary services and facilities for the operation of the clearing facility. The Board has
accepted the offer of the Central Bank of Iran to act as an agent for the Union.

(b) CAMELS Rating

CAMELS ratings are the result of the Uniform Financial Institutions Rating System, the
internal rating system used by regulators for assessing financial institutions on a uniform
basis and identifying those institutions requiring special supervisory attention. Regulators
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assign CAMELS ratings both on acomponent and composite basis, resulting in a single
CAMELS overall rating. When introduced in 1979,the system had five components. A sixth
component—sensitivity to market risk—was added in 1996.The regulators that year also
added an increased emphasis on an organization’s management of risk.
The six component areas are:
• C—Capital adequacy
• A—Asset quality
• M—Management
• E—Earnings
• L—Liquidity
• S—Sensitivity to market risk
The ratings range from 1 to 5, with 1 being the highest rating (representing the least
amount of regulatory concern) and 5 being the lowest. CAMELS ratings are strictly
confidential, and may not be disclosed to any party. But only to the top management of the
banking company use the rating to prevent a bank run on a bank which has a bad CAMELS
rating.
( c) Repo and Reverse Repo

The rate at which the central bank lends money to commercial banks keeping the treasury
bills as security is called repo rate. It is an instrument of monetary policy. Whenever banks
have any shortage of funds they can borrow from the BB. A reduction in the repo rate helps
banks get money at a cheaper rate and vice versa. The repo rate in Bangladesh is similar to
the discount rate in the US. Reverse Reporate is the rate at which the central bank borrows
money from commercial banks. Banks are always happy to lend money to the BB since their
money is in safe hands with a good interest. An increase in reverse repo rate can prompt
banks to park more funds with the central bank to earn higher returns on idle cash. It is also
a tool which can be used by the BB to drain excess money out of the banking system.
The Bangladesh Bank (BB) has slashed its interest rate on repurchase agreement (repo) and
reverse repo by 50 basis points. The rate was cut after nearly four years aiming at boosting
fresh investment particularly in productive sectors, officials said.The interest rate on repo
auction came down to 7.25 per cent from 7.75 per cent while that on reverserepo was re-
fixed at 5.25 per cent from 5.75 per cent. The revised interest rates on both repo and
reverse repo will come into effect from February 1, a central bank circular said Thursday.
MD. ABUL KHAIRAT(TUSHAR) ,
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(D) Financial inclusion:

Financial inclusion or inclusive financing is the delivery of financial services at

affordable costs to sections of disadvantaged and low-income segments of society, in
contrast to financial exclusion where those services are not available or affordable. An
estimated 2 billion working-age adults globally have no access to the types of formal
financial services delivered by regulated financial institutions. For example, in Sub-
Saharan Africa only 24% of adults have a bank account even though Africa's formal
financial sector has grown in recent years.[1] It is argued that as banking services are in
“Financial inclusion may be defined as the process of ensuring access to financial
services and timely and adequate credit where needed by vulnerable groups such as
weaker sections and low income groups at an affordable cost.”

Goals
The term "financial inclusion" has gained importance since the early 2000s, a result of
findings about financial exclusion and its direct correlation to poverty. The United
Nations defines the goals of financial inclusion as follows:
MD. ABUL KHAIRAT(TUSHAR) ,
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 access at a reasonable cost for all households to a full range of financial services,
including savings or deposit services, payment and transfer services, credit and
insurance;
 sound and safe institutions governed by clear regulation and industry performance
standards;
 financial and institutional sustainability, to ensure continuity and certainty of
investment; and
 competition to ensure choice and affordability for clients.

Benefits of Financial Inclusion

Financial inclusion enables good financial decision making through financial literacy and
qualified advice as also access to financial services for all, particularly the vulnerable
groups such as weaker sections, minorities, migrants, elderly, micro entrepreneurs and
low income groups at an affordable cost so as to enable them to

a) manage their finances on day to day basis confidently, effectively and securely;

b) Plan for the future to protect themselves against short term variations in income and
expenditure and for wealth creation and gaining from financial sector developments; and

c) deal with financial distress effectively thereby reducing their vulnerability to the
unexpected.

(e) Multiplier effect:

. The multiplier effect is the expansion of a country's money supply that results from
banks being able to lend. The size of the multiplier effect depends on the percentage of
MD. ABUL KHAIRAT(TUSHAR) ,
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deposits that banks are required to hold as reserves. In other words, it is money used to
create more money and is calculated by dividing total bank deposits by the reserve
requirement.

BREAKING DOWN 'Multiplier Effect'

The multiplier effect depends on the set reserve requirement. So, to calculate the impact
of the multiplier effect on the money supply, we start with the amount banks initially take
in through deposits and divide this by the reserve ratio. If, for example, the reserve
requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in
reserve. However, the remaining $80 can be loaned out to other bank customers. This $80
is then deposited by these customers into another bank, which in turn must also keep
20%, or $16, in reserve but can lend out the remaining $64. This cycle continues - as
more people deposit money and more banks continue lending it - until finally the $100
initially deposited creates a total of $500 ($100 / 0.2) in deposits. This creation of
deposits is the multiplier effect.

The higher the reserve requirement, the tighter the money supply, which results in a
lower multiplier effect for every dollar deposited. The lower the reserve requirement, the
larger the money supply, which means more money is being created for every dollar
deposited.

1
oney Multiplier =
Required Reserve Ratio

Required reserve ratio is the fraction of deposits which a bank is required to hold in hand.
It can lend out an amount equals to excess reserves which equals (1 − required reserves).

Higher the required reserve ratio, lesser the excess reserves, lesser the banks can lend as
loans, and lower the money multiplier. Lower the required reserve ratio, higher the excess
reserves, more the banks can lend, and higher is the money multiplier.

In the above relationship it is assumed that there is no currency drainage, i.e. the
borrowers keep 100% of the amount received in banks.

Currency drainage
In reality, borrowers do keep a fraction of loans received in cash. This reduces the money
multiplier. When there is some currency drainage, money multiplier is calculated as per
following formula:

Money multiplier when there is currency 1 + drainage ratio

MD. ABUL KHAIRAT(TUSHAR) ,
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drainage= required reserve ratio + drainage ratio

Examples
Example 1

Ishkebar is an alien country that has seen little financial innovation. Its central bank
requires commercial banks to keep 100% of their deposits as reserves. Calculate money
multiplier for the economy.

Money multiplier = 1/required reserve ratio = 1/100% = 1

The country has a money multiplier of 1. No money creation is possible because in

response to an increase in bank deposits of say 100 million Ishkebar dollars (I$), the
money supply will increase by 1 × I$100 million = I$100 million.

Example 2

North Sarrawak is run by a dictator who knows no economics and is not willing to listen
to any advice. He thinks he can always print money whenever a depositor wants to
withdraw so he does not think having any required reserve ratio for the sole bank of the
country is necessary. What could be the consequences?

Zero required reserve ratio means infinite money multiplier and infinite money creation.
Infinite money creation means no scarcity of money which means money would no
longer be money since it would no longer be a store of value.

Example 3

Palmolive has required reserve ratio of 30% and a currency drainage of 15%. Calculate
the money multiplier and compare it with Parazuela, a country where drainage is zero and
required reserve ratio is 30%.

(f) green bank:

 A green bank is a public or quasi-public financing institution that provides low-

cost, long-term financing support to clean, low-carbon projects by leveraging
public funds through the use of various financial mechanisms to attract private
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investment so that each public dollar supports multiple dollars of private

investment.

Common characteristics and structures

Depending on the state, a green bank may conform to a variety of structures,
utilize many different public funds, and create a diverse array of financial
products. Banks may utilize financial tools such as long-term and low interest rate
loans, revolving loan funds, insurance products (such as loan guarantees or loan-
loss reserves), and low-cost public investments or it may design new financial
products. Ultimately, however, all green banks will exhibit several common
characteristics:

● Stimulate demand by covering 100% of the upfront costs with a mixture of

public and private financing;
● Leverage public funds by attracting much greater private investment to clean
energy and efficiency markets;
● Recycle public capital so as to expand green investment and leave taxpayers
unharmed;
● Reduce market inefficiencies; and
● Scale out clean energy solutions as fast as possible, maximizing clean
electricity and efficiency gains per state dollar.

Green banks will seek to achieve several goals, including increased deployment of
clean energy, more efficient use of public funds, and animation of mature private
financial markets for clean energy investing. In Connecticut, CEFIA determined
that its primary goal, or “objective function” would be to “maximize the amount
of clean energy produced (or energy saved) per dollar of public funds at risk.”
Green banks will seek to promote cheaper, cleaner, and more reliable energy.

Although a green bank may take a variety of forms, there are generally three
structures to consider. First, as was done in Connecticut, the green bank can be
standalone as a quasi-independent entity. This structure allows for the most
flexibility and autonomy. Another option is for the green bank to be housed
within an existing state agency. The New York Green Bank and Hawaii’s clean
energy financing programs operate within state agencies. Lastly, a green bank
may be incorporated into an infrastructure bank, where it would likely be
established as a separate subsidiary.

A green bank can receive its initial funding from several public sources. In both
Connecticut and New York, existing state funds (systems benefit charges) were
repurposed and Regional Greenhouse Gas Initiative (RGGI) funds also provided
initial capital for the green bank. Alternatively, as was done in Hawaii, the state
can issue bonds to private investors. Green banks can also receive money from
cap and trade auction revenues and private foundations, depending on the state
and legal structure established when the green bank is created. New state budget
appropriation is rarely advised, unless it appears clearly feasible in a particular
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state.

Steps to establishment
Generally, there are three stages to establishing a new state green bank. In the first
stage, a coalition of stakeholders (e.g., clean energy organizations, clean tech
trade associations, environmental groups, state agencies) establishes a base of
support for a green bank. This support is critical to passing legislation or
achieving the required regulatory change to legally create a green bank. In the
second stage, the green bank organization is established, which includes hiring
staff, building capabilities, identifying goals, assessing markets and developing
products. In the final stage, the green bank actually begins acquiring customers,
lending in partnership with private investors, and recycling funds in order to
recapitalize the bank.