Currency Swap Agreement Indian Express

by admin on September 16th, 2021

The Reserve Bank of India (RBI) has signed an agreement to extend a $400 million swap facility in Sri Lanka to increase foreign exchange reserves and ensure financial stability in the country hit hard by the COVID-19 pandemic. The RBI has entered into a special currency exchange agreement with the central banks of the region. These agreements are the result of the gesture of successive Indian governments to strengthen economic cooperation in the region. Swap arrangements aim to provide member countries of the South Asian Regional Cooperation Association (SAARC) with an immediate line of financing to deal with balance of payments and liquidity crises, until longer-term arrangements are concluded or when, due to tight market conditions, it is necessary to increase liquidity in the short term. In May 2012, at the SAARC FINANCE Governor`s meeting in Nepal, the RBI Governor announced that RBI would offer swap facilities totalling $2 billion to neighbouring countries in the region, in both foreign currencies and Indian rupees. The institution is available to all SAARC member states, namely Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. Under such an agreement, the RBI signed the first currency swap agreement with the Royal Monetary Authority of Bhutan (RMAB) on 8 March 2013. Rmab could withdraw US dollars, euros or Indian rupees in several tranches, up to a maximum of $100 million or equivalent. The contract is valid for a period of three years from the date of signature.

This facility was initially created on the 15th A backstop financing line for short-term foreign exchange liquidity requirements or balance of payments crises was not put into operation on 1 November 2012, until longer-term agreements were concluded. As part of 2019-22, the RBI will continue to offer a swap arrangement within the total corpus of $2 billion. Other countries can withdraw money in US dollars, euros or Indian rupee. India already has a $75 billion bilateral swap line with Japan, which holds the second highest dollar reserves after China. The Reserve Bank of India also offers similar swap lines for central banks in the SAARC region, totalling $2 billion. • The agreement between Sri Lanka and the RBI was signed within the framework of the South Asian Association for Regional Cooperation (SAARC). The RBI also offers similar swap lines for central banks in the SAARC region in a total corpus of $2 billion. This facility was initially commissioned in 2012. These swap operations do not present any foreign exchange or other market risks, as the transaction conditions are set in advance. The absence of exchange rate risk is the main advantage of such a facility.

In March 2016, the RBI signed another special swap agreement with the Central Bank of Sri Lanka. Under the agreement, the Central Bank of Sri Lanka can set up to $700 million for up to three months. This special regime complements the existing framework for the currency exchange arrangement for ASARC members. The proposal to extend to Sri Lanka, for a limited period, the additional $700 million currency exchange facility was adopted with the agreement of the Government for short-term liquidity management in the context of India`s strong bilateral and economic relations with Sri Lanka. . . .

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