Indo – Sri Lanka Currency Swap Agreement

Indo – Sri Lanka Currency Swap Agreement

Subject : International Relations

Context : Sri Lanka is “banking on” a $1 billion currency swap from India to meet its debt repayment obligations this year and tide over the current economic crisis, a senior official of the Central Bank of Sri Lanka said.

Concept :

Currency Swap Arrangement (CSA)

• An arrangement between two friendly countries to involve in trading in their own local currencies.
• As per the arrangements, both countries pay for import and export trade at the pre-determined rates of exchange, without bringing in third country currency like the US Dollar.
• In such arrangements no third country currency is involved, thereby eliminating the need to worry about exchange variations.

Significance of the agreement:

• Improves the confidence in the Indian market.
• Enables the agreed amount of capital being available to India.
• Bring down the cost of capital for Indian entities while accessing the foreign capital market.
• Aids in bringing greater stability to foreign exchange and capital markets in India.