In recent years, the Reserve Bank of India (RBI) has been diligently working to increase the acceptability of the Indian Rupee (INR) in global trade, a process referred to as the internationalisation of the Indian rupee. As part of this pursuit, the RBI has announced a Currency Swap Arrangement with the South Asian Association for Regional Cooperation (SAARC) nations for the period 2024-2027.
Continue reading to understand the significance of this move and its impact on the Indian forex market.
What’s Happening?
Recently, in concurrence with the Indian government, the RBI announced a new multilateral currency swap arrangement with SAARC nations amounting to $2 billion for the period 2024-2027. The total corpus of the rupee support is Rs 250 billion. The existing facility for swap arrangements in US dollars and euros will continue during this period.
Central banks wishing to avail themselves of this facility will need to sign a bilateral currency swap agreement with the RBI. The SAARC Currency Swap Arrangement was first introduced on 15th November 2012, aiming to provide a backstop line of funding for short-term foreign exchange liquidity requirements or balance of payment crises of SAARC countries.
What’s More?
The currency swap arrangement is a crucial funding mechanism for SAARC nations (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka), helping them meet short-term forex liquidity requirements. Many Indian businesses have vital economic interests in SAARC nations, and the introduction of the Indian Rupee swap facility will allow these countries to make payments in INR.
What’s Next?
The revised SAARC Currency Swap Agreement demonstrates India’s steadfast commitment to providing liquidity assistance to its neighbours and helping avoid balance of payment crises. The introduction of the INR Swap Facility is a significant update, coming at a vital time when India is trying to establish the Indian rupee as the foremost medium of exchange in regional trade settlements. Using the Indian Rupee as a medium of exchange is a win-win for both parties due to significantly reduced transaction costs.
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*This article is for informational purposes only. This is not investment advice.
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