India in talks with 10 countries for currency swap pacts

[SajeevJino]

India in talks with 10 countries for currency swap pacts​

India is in talks with major trading partners, including Singapore and Japan, as well as oil suppliers like Iraq and Venezuela, to accept payment in rupee for a part of their exports.

Reuters reported that this is one of the key recommendations of a government panel that was set up in August to study currency swaps and is now understood to have won support from the finance ministry, commerce ministry and the Reserve Bank of India. The move will also make the rupee more acceptable in international trade.

The report of the taskforce under Rajeev Kher, additional secretary in the commerce ministry, which is likely to be finalised over the next few days, is expected to call for currency swap pacts with 10 countries, the agency said.

The assumption is that the rupee is now acceptable de facto as a unit of currency by traders in markets like Singapore and so the barter trade will give it legitimacy.

It is one more step to push the rupee closer to capital account convertibility. For instance India-Singapore trade was over $24 billion in 2012 and diversified. So there is room for savings by India of $1 billion of foreign exchange through this arrangement, an earlier report by The Indian Express had noted.

Earlier this year, India has begun paying for oil imports from Iran in rupees that could help save $8.5 billion in the current fiscal.

It plans to target oil producing countries such as Venezuela and Iraq, too, for a similar arrangement. But while Iran is a special case, Iraq or Saudi Arabia have problems as they hardly import anything from India.

So the rupee chest will be useless for them. Reuters, however, reported that China has also shown keenness to start a yuan-rupee trade while Japan, too, is largely willing to go ahead with such a plan.

India's current account deficit shot up to $88 billion in 2012-13 and its trade deficit widened to a record $190 billion in last fiscal as the gap with major trade partners such as China soared to $40 billion, and the combined deficit with South Korea, Japan and Venezuela touched $30 billion.

The record CAD is also blamed for the sharp depreciation in the rupee that touched a record low of 68.75 against the US dollar in late August. Since then, the government has stepped in with a number of measures to arrest the rupee fall and control the CAD, which is now estimated at $60 billion in 2013-14.

A larger volume of trade in rupee will expand the onshore market for the currency, which is now dominated by offshore non-deliverable forwards market.

The volume of rupee offshore market is now 18 per cent of the daily turnover for all emerging market economies, as per a Nomura estimate. Available literature also shows that typically for India and China, it is the offshore market that determines how the domestic currency behaves compared with economies that allow more convertibility, like Brazil and South Korea.

For instance, since 2008, while NDF trade in the Brazilian real has retained the top spot among all nations, the rupee has vaulted to the second position by 2013, the same Nomura paper shows.


India in talks with 10 countries for currency swap pacts - Indian Express

 

[Yusuf]

Pls include Taiwan in the list.I am fvcking bleeding because of dollar exchange fluctuations

 

[natarajan]

will it improve rupee against dollar

 

[Abhijeet Dey]

China Announces That It Is Going To Stop Stockpiling U.S. Dollars
NOVEMBER 22, 2013

LINK: wallstreetsectorselector.com/2013/11/china-announces-going-stop-stockpiling-u-s-dollars/
China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States.

The central bank of China has decided that it is "no longer in China's favor to accumulate foreign-exchange reserves". During the third quarter of 2013, China's foreign-exchange reserves were valued at approximately $3.66 trillion. And of course the biggest chunk of that was made up of U.S. dollar(NYSEARCA:UUP) China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down. One of the goals has been to make Chinese products less expensive in the international marketplace. But now China has announced that the time has come for it to stop stockpiling U.S. dollars. And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt. Needless to say, all of this would be very bad for the United States.

For years, China has been systematically propping up the value of the U.S. dollar and keeping the value of the yuan artificially low. This has resulted in a massive flood of super cheap products from across the Pacific that U.S. consumers have been eagerly gobbling up.

For example, have you ever gone into a dollar store and wondered how anyone could possibly make a profit by making those products and selling them for just one dollar?

Well, the truth is that when you flip those products over you will find that almost all of them have been made outside of the United States. In fact, the words "made in China" are probably the most common words in your entire household if you are anything like the typical American.

Thanks to the massively unbalanced trade that we have had with China, tens of thousands of our businesses, millions of our jobs and trillions of our dollars have left this country and gone over to China.

And now China has apparently decided that there is not much gutting of our economy left to do and that it is time to let the dollar collapse. As I mentioned above, China has announced that it is going to stop stockpiling foreign-exchange reserves"¦

The People's Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan's appreciation.

"It's no longer in China's favor to accumulate foreign-exchange reserves," Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will "basically" end normal intervention in the currency market and broaden the yuan's daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.

It isn't going to happen overnight, but the value of the U.S. dollar is going to start to go down, and all of that cheap stuff that you are used to buying at Wal-Mart and the dollar store is going to become a lot more expensive.

But of even more importance is what this latest move by China could mean for U.S. government debt. As most Americans have heard, we are heavily dependent on foreign nations such as China lending us money. Right now, China owns nearly 1.3 trillion dollars of our debt. Unfortunately, as CNBC is noting, if China is going to quit stockpiling our dollars than it is likely that they will stop stockpiling our debt as well"¦

Analysts see this as the PBoC hinting that it will let its currency fluctuate, without intervention, thus negating the need for holding large reserves of the dollar. And if the dollar is no longer needed, then it could look to curb its purchases of dollar-denominated assets like U.S. Treasurys.

"If they are looking to reduce these purchases going forward then, yes, you'd have to look at who the marginal buyer would be," Richard McGuire, a senior rate strategist at Rabobank told CNBC in an interview.

"Together, with the Federal Reserve tapering its bond purchases, it has the potential to add to the bearish long-term outlook on U.S. Treasurys."

................Cont.

 

[no smoking]

will it improve rupee against dollar

Yes, I think it will help push Rupee's exchange rate against dollar, but may not be a good news for its exchange rate against other currency.

 

[nirranj]

Pls include Taiwan in the list.I am fvcking bleeding because of dollar exchange fluctuations

fvcking bleeding

 

[AVERAGE INDIAN]

The World Bank first introduced currency swaps in 1981 in an effort to obtain German marks and Swiss francs. This type of swap can be done on loans with maturities as long as 10 years. They differ from interest rate swaps because they also involve principal.

Currency swap lines allow central banks to purchase and repurchase currencies from one another, which in turn makes it easier for banks in each relevant country to get hold of the underlying currencies. They are sometimes wheeled out in times of crisis to ensure liquidity keeps flowing around the markets. But they are not just there for the tough times. In China's case, they make it easier to trade the yuan offshore. The extension of this agreement to China should ease investors' concerns over the ability to dispose of large sums of the currency on short notice for cash management or trade settlement needs.