The real advantage of the currency swap agreement is that the RBI will have access to $75 billion in foreign exchange at a time when India`s current account deficit factors are strengthening. There will be a psychological impact on the foreign exchange market, as traders in the foreign exchange market will be convinced of the country`s ability to tackle the problem of foreign exchange shortages. At a time when rupees were depreciating by more than 13% against the dollar (so far), India and Japan yesterday concluded one of the largest bilateral currency exchange agreements in the world. This will not only strengthen bilateral financial cooperation between the two countries, but also stabilize the rupees and reduce the current account deficit (CA). “In order to improve financial and economic cooperation, the Japanese and Indian governments welcomed the agreement to conclude a $75 billion bilateral swap agreement (BSA,”” the India-Japan vision statement said. It was published at the end of the two-day annual summit between Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe in Tokyo. How will the swea-currency work between India and Japan? It is an emergency regime and, although India has already entered into similar agreements, it has never had to resort to it. The agreement provides some consolation to the country facing rupees and current account deficits. The swap agreement implies that India can take up to $75 billion from Japan in exchange for rupees as soon as necessary.
NEW DELHI (Reuters) – India and Japan signed a $75 billion bilateral currency exchange agreement on Monday during Prime Minister Narendra Modi`s visit to Tokyo, according to a statement from India. 4) Exchange reserve currency for non-reserve currency; India and Japan signed a currency exchange agreement during Prime Minister Modi`s visit to Japan on October 28, 2018. The currency exchange agreement is worth $75 billion and is a great opportunity for India to obtain foreign currency by trading rupees in Japan. The agreement should help make india`s foreign exchange and capital markets more stable, he added. In addition to monetary or exchange rate stability, exchange swaps between governments also pursue additional objectives such as promoting bilateral trade, maintaining the value of foreign exchange reserves with the Central Bank and guaranteeing financial stability (protecting the health of the banking system). During his recent visit to Japan, Prime Minister Narendra Modi reached an agreement for a bilateral agreement on currency sweats exchanges, in addition to discussing ball trains and yen loans with his Japanese counterpart. Although India has such agreements with many Asian nations, it is one of the largest of these agreements, which are valued at $75 billion. The government hopes the agreement will serve as a buffer to support the rupees, which have depreciated by 14% against the dollar this year.
The word “swap” means exchange. A currency exchange between two countries is an agreement or a currency exchange contract (of both countries or of any hard currency) with pre-established terms and conditions. As noted above, the main objective of foreign exchange swaps is to avoid turbulence and other risks in the foreign exchange market and exchange rate. Central banks and governments conduct currency swets with foreign partners to ensure an appropriate foreign currency in times of shortage. Both work with the same objective and by a similar mechanism. Currency swap agreements can be bilateral or multilateral. The first swea, signed on February 28, 1962, took place between the U.S. Federal Reserve and the French Central Bank. A swap agreement with Japan provides considerable comfort to India, as Japan is the second largest holder of dollar reserves in the world after China and is on fat crates of more than $1.250 billion. Therefore, while Japan is unlikely to apply for a dollar loan to India, India can use such credit at very low interest rates.