India & Japan to go for $10-bn currency swap

[JAISWAL]

New Delhi: The Reserve Bank of India will enter into a $10-billion currency swap arrangement with its Japanese counterpart, Bank of Japan (BoJ), this week. The move would strengthen the Indian central bank's armoury to tackle any liquidity crisis and volatility in the currency market.

Under the deal, the two central banks will supply each other with up to $5 billion from their foreign currency reserves for possible market intervention, in the event of a financial turmoil.

For India, the swap arrangement is all the more important and it might actually draw into the facility, given the situation of net capital outflows, an exacerbating current account deficit (which could climb to a troublesome 4.9% of GDP for the Oct-Dec quarter) and the weak composition of reserves. India is struggling to meet the projected level ($72 billion) of capital inflows for this fiscal and even the most optimistic forecasts don't put the figure above...

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India & Japan to go for $10-bn currency swap

 

[Ray]

Can someone explain this and its positive effects in layman's language?

 

[bhramos]

Can someone explain this and its positive effects in layman's language?

i generally think they would also swap gold, in the cost of currency or $, which is the general process.... to maintain the fluctuations...

 

[badguy2000]

Can someone explain this and its positive effects in layman's language?

1. decrease the usage of US dollar and Euros

2.accellerate the internationalization of RMB

 

[Daredevil]

Let me give an example.

If India faces a fall in rupee rate versus dollar due to lack of dollars in the market (the classic demand supply ratio), then Japan can give $5 billion to India which can be used to put the dollars in the market to not allow any further depreciation of rupee. The same applies to Japan as well. In a way, we are watching the backs of each other.

 

[p2prada]

$5Billion won't help Japan much. This will help RBI manage immediate cash flow if something happens on the FDI front that was unpredictable and causes unacceptable loss of capital.

 

[KS]

Interesting only days before Pak & China signed a currency swap agreement,

 

[p2prada]

This is done by 2 economies as backup.

China Pakistan

China Thailand

China South Korea

South Korea Japan

China Indonesia

Japan China

Pakistan Turkey

 

[SLASH]

Good move. It is only a start. The amount will only increase with time.