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The Union Cabinet has approved India’s Currency Swap Agreement with Japan. The $75-billion bilateral currency swap arrangement is a milestone in mutual economic cooperation and special strategic and global partnership between two countries.
Currency Swap Agreements
A Currency swap agreement is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.
How Currency Swap Agreement can benefit India?
The currency swap agreement can be beneficial to India in the following ways:
- The currency swap facilities make it easier for India to pay for its imports. This aids in addressing the challenge of depreciation.
- Since the Currency swap agreement involves trading in local currencies. Countries pay for imports and exports through their own currencies rather than involving a third country currency. This does away with the charges involved in multiple currency exchanges.
- The currency swap makes it easier to improve liquidity conditions.
- Currency swap agreements help in saving for a rainy day when the economy is not looking in good shape.
- The swap agreements also contribute towards stabilising the country’s balance of payments (BoP) position.
- The agreement aids in improving the confidence in the Indian market.
- Together with ensuring that the agreed amount of capital is available to India, it also brings down the cost of capital for Indian entities while accessing the foreign capital market.
The Currency Swap Agreement was concluded between Prime Minister Narendra Modi and Japan’s Prime Minister Shinzo Abe during the summit level meeting at Yamanashi, Japan.