Currency Swap Arrangement for SAARC | 27 Nov 2019

Why in News

The Reserve Bank of India (RBI) has revised the framework on currency swap arrangement for the South Asian Association for Regional Cooperation (SAARC) countries for 2019-2022.

• This has been done to further financial stability and economic cooperation within the SAARC region.

Key Points

• The SAARC currency swap facility came into operation on 15th November, 2012.
• Under the revised framework,
  
  • The RBI will continue to offer a swap arrangement within the overall corpus of USD 2 billion.
  • The swap drawals can be made in US dollar, euro or Indian rupee. The framework provides certain concessions for swap drawals in Indian rupee.
  • The facility will be available to all SAARC member countries, subject to their signing the bilateral swap agreements.
  • The framework is valid from 14^th November, 2019 to 13^th November, 2022.

Currency Swap Arrangement

• The word swap means exchange. A currency swap between the two countries is an agreement or contract to exchange currencies with predetermined terms and conditions.
• Central banks and Governments engage in currency swaps with foreign counterparts to meet short term foreign exchange liquidity requirements or to ensure adequate foreign currency to avoid Balance of Payments (BOP) crisis till longer arrangements can be made.
• Example
  
  • India and Japan in the year 2018 signed a bilateral currency swap agreement.
  • RBI will get a certain amount of yen and the Bank of Japan will get an equivalent amount in Indian rupees on a decided swap rate.
  • After a specified period, both the countries will repay the amount at the same swap rate.

Source: IE