The Reserve Bank of India (RBI) has decided to introduce a revised framework for currency swaps in respect of SAARC (South Asian Association for Regional Cooperation) countries for the period 2024 to 2027.
Currency Swap Framework
- Currency swap is an agreement or contract between two countries for the exchange of currencies on pre-determined terms and conditions in order to maintain liquidity.
- Central banks and governments exchange currencies with foreign counterparts to meet short-term foreign exchange liquidity requirements or to ensure adequate foreign exchange to avoid a balance of payments crisis.
- There is no risk of exchange rate or other market risks in these swap agreements as the terms of the transaction are determined in advance.
RBI’s framework for swap facilities for SAARC
- The SAARC Currency Swap Facility was first implemented on November 15, 2012 with the objective of providing a backstop line of financing for short-term foreign exchange liquidity requirements or balance of payment crises of SAARC countries until long-term arrangements are in place.
- RBI can offer swap arrangements within the overall corpus of US$ 2 billion.
- Swaps can be done in US dollars, euros or Indian rupees. The framework provides certain concessions for swaps in Indian rupees.
- This facility will be available to all SAARC member countries, provided they sign bilateral swap agreements.
Changes in the new framework
- Under the framework for the year 2024-27, a separate INR (Indian Rupee) swap window has been introduced with various concessions for swap support in Indian rupees.
- The total amount of rupee support is Rs 250 billion.
- RBI will continue to offer swap arrangements in US Dollar and Euro under a separate US Dollar/Euro Swap Window with a corpus of US $ 2 billion.
Other Bilateral Currency Swap Agreements
- India-Japan
- India-Sri Lanka
South Asian Association for Regional Cooperation (SAARC)
- Establishment: SAARC was established on 8 December 1985 with the signing of the SAARC Charter in Dhaka (Bangladesh).
- Member countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
- Secretariat: Kathmandu, (Nepal)
- Objective: To promote the welfare of the people of South Asia, improve their quality of life, and accelerate economic growth, among other things.