In News: Reserve Bank of India (RBI) and the Central Bank of Sri Lanka (CBSL) had concluded the USD 400 million currency swap agreement in July last year under the SAARC currency swap framework.
- It was extended for 3 months on Central Bank of Sri Lanka (CBSL)’s request.
- Further extension requires Sri Lankan negotiations with staff level agreement for an International Monetary Fund (IMF) programme.
What is a Currency Swap Agreement?
The Currency Swap Agreement means contract for exchange of Currencies at predetermined Terms and Conditions.
- It is like an open ended Credit Line by one country to another
- The Interest rates are charged as per standard benchmarks like LIBOR, etc
Need and Benefits:
- It helps to meet short term foreign exchange liquidity requirements.
- It also ensures adequate foreign currency to avoid Balance of Payments (BOP) crisis till longer arrangements can be made.
Conclusion:
The Currency Swap Agreement and its extension in case of Sri Lanka is a reconfirmation of India’s Adherence to Gujral Doctrine while dealing with neighbours as well as rule based currency regime.
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About SAARC Currency Swap Facility:
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Source: Business Standard
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