The Union Cabinet has approved the proposal for entering into an Agreement for Bilateral Currency Swap Arrangement (BSA) between India and Japan for $75 billion.
About:
Currency swap agreements involve trade in local currencies, where countries pay for imports and exports at pre-determined rates of exchange without the involvement of a third country currency like the US dollar.
Recent agreement:
The recent decision authorizes the Reserve Bank of India (RBI) to sign the Agreement for Bilateral Swap Arrangement between the RBI and the Bank of Japan for a maximum amount of USD 75 billion.
This agreement will give India access to $75 billion of forex reserves from Japan as and when required by paying in rupees for the purpose of maintaining an appropriate level of balance of payments for meeting short-term deficiency in foreign exchange.
Benefits:
The swap agreements will help address possible short-term liquidity mismatches, and supplement existing international financial arrangements.
Availability of such swap line to tide over difficulties arising out of Balance of Payment (BOP) would deter speculative attacks on the domestic currency and greatly enhance the RBI’s ability to manage exchange rate volatility.
This arrangement would also improve prospects of Indian companies in tapping foreign capital as there would be greater confidence in stability of country’s exchange rate.
The arrangement is another milestone in mutual economic cooperation and special strategic and global partnership between India and Japan.
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