Cabinet approves amendments to Currency Swap arrangement for SAARC nations

• The Union Cabinet, chaired by the Prime Minister Narendra Modi has given ex-post facto approval for amendment to the ‘Framework on Currency Swap Arrangement for SAARC Member Countries’ to incorporate a ‘Standby Swap’ amounting to US$ 400 million operated within the overall size of the Facility of US$ 2 billion and build in flexibility with respect to modalities of its operation, such as period of swap, roll over, etc.

• After due consideration of conditions of requesting SAARC member countries and domestic requirements of India.

Key concerns

• Due to heightened financial risk and volatility in global economy, short term swap requirements of SAARC countries could be higher than the agreed lines.

• The incorporation of ‘Standby Swap’ within the approved SAARC Swap Framework would provide necessary flexibility to the Framework and would enable India to provide a prompt response to the current request from SAARC member countries for availing the swap amount exceeding the present limit prescribed under the SAARC Swap Framework.

• Cabinet approved the Framework on Currency Swap Arrangement for SAARC Member Countries on 1 March 2012 with the intention to provide a line of funding for short term foreign exchange requirements or to meet balance of payments crises till longer term arrangements are made or the issue is resolved in the short-term itself.

• Under the Facility, RBI offers swaps of varying sizes in US$, Euro or INR to each SAARC member country depending on their two months import requirement and not exceeding US$ 2 billion in total.

• The swap amount for each country has been defined in the above Facility, subject to a floor of US$ 100 Million and a maximum of US$ 400 Million.

• Each Drawal will be for three months tenor and upto maximum of two rollovers.

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Mains Paper 2: International Relations

Prelims level: Currency Swap arrangement

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