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Revised Currency Swap Framework For SAARC

Revised Currency Swap Framework For SAARC:

The Reserve Bank of India (RBI), has decided to put in place a revised framework for currency swap arrangements for SAARC (South Asian Association for Regional Cooperation) countries for the period 2024 to 2027.

  • A currency swap agreement between two countries is a contract to exchange currencies with predetermined terms and conditions for liquidity support.
  • 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 the Balance of Payments (BOP) crisis till longer arrangements can be made.
  • These swap operations carry no exchange rate or other market risks as transaction terms are set in advance.
  • The SAARC currency swap facility first came into operation on 15th November 2012, to provide a backstop line of funding for short-term foreign exchange liquidity requirements or balance of payment crises of the SAARC countries till longer-term arrangements are made.
  • The RBI can offer a swap arrangement within the overall corpus of USD 2 billion.
  • The swap can be made in US dollars, euro or Indian rupees. The framework provides certain concessions for swap in the Indian rupee.
  • The facility will be available to all SAARC member countries, subject to their signing the bilateral swap agreements.
  • Under the framework for 2024-27, a separate INR (Indian Rupee) swap window has been introduced with various concessions for swap support in Indian Rupee.
  • The total corpus of the rupee support is Rs. 250 billion.
  • The RBI will continue to offer swap arrangements in USD and Euro under a separate US Dollar/ Euro swap window with an overall corpus of USD 2 billion.