SAARC currency swap framework

SAARC currency swap framework

Subject : Economy

Context:

The Reserve Bank of India has signed a Currency Swap Agreement with the Maldives Monetary Authority (MMA)  under the SAARC Currency Swap Framework.

Details:

This agreement will enable the MMA to make drawals in multiple tranches up to a maximum of USD 200 million from the RBI thus, funding short term foreign exchange liquidity requirements.

SAARC currency swap framework

• The SAARC currency swap facility came into operation on 15th November, 2012.
• The RBI can 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.
  • Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka are part of SAARC grouping.
• The framework is valid from November 14, 2019 to November 13, 2022 (extended till 2022).

Currency Swap Arrangement?

• A currency swap between 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 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.