The Reserve Bank of India (RBI) has recently updated the framework for the currency swap arrangement for countries within the South Asian Association for Regional Cooperation (SAARC). This revision, which covers the period from 2019 to 2022, is aimed at promoting financial stability and enhancing economic cooperation within the SAARC region.
Key Updates to the Framework
In the revised framework, the RBI will continue to provide a swap arrangement within an overall corpus of USD 2 billion. The facility for swap drawals, which can be made in US dollar, euro or Indian rupee, is available to all SAARC member countries, provided they sign the bilateral swap agreements. The new framework also includes special concessions for swap drawals made in Indian rupees. The framework is valid from 14th November, 2019 to 13th November, 2022.
Understanding Currency Swap Arrangements
A currency swap arrangement between two countries is essentially an agreement to exchange currencies under predetermined terms and conditions. These arrangements are typically undertaken by central banks or governments with their foreign counterparts to fulfil short-term foreign exchange liquidity needs or to guarantee sufficient foreign currency to avoid a Balance of Payments (BOP) crisis until more permanent arrangements are made. For instance, in 2018, India and Japan entered into a bilateral currency swap agreement where both parties exchanged a certain amount of yen and Indian rupees at a decided swap rate. At the end of the specified period, the countries will repay the amount at the agreement’s original swap rate.
SAARC: A brief overview
Established on 8th December 1985, SAARC was formed with the signing of the SAARC Charter in Dhaka, Bangladesh. The member states include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. With its secretariat based in Kathmandu, Nepal, SAARC’s goal is to enhance the welfare of the South Asian population, improve quality of life, drive economic growth, and more.
Snapshot: SAARC Facts
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| Established | 8th December 1985 |
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| Member Countries | Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka |
| Secretariat | Kathmandu, Nepal |
| Objective | Promote welfare, improve quality of life and accelerate economic growth in South Asia |
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RBI’s Revised Framework and Its Implications
The RBI’s updated framework for currency swap arrangements is a significant step toward ensuring financial stability within the SAARC region. By continuing to offer an overall corpus of USD 2 billion in swap facilities and providing concessions for swaps in Indian rupee, the RBI is actively strengthening economic ties as well as promoting regional financial cooperation. The revised framework serves as a testament to India’s commitment to foster economic prosperity within the SAARC region.