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Lanka ‘banking on’ $1 bn India swap deal

Topics Covered: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests. 

Lanka ‘banking on’ $1 bn India swap deal: 


Context: 

Sri Lanka is “banking on” a $1 billion currency swap from India to meet its debt repayment obligations this year and tide over the current economic crisis. 

  • Sri Lanka is a $400 million swap from the Reserve Bank of India in a couple of months through the SAARC facility. 

 

Background: 

Sri Lanka is facing a foreign currency crisis in the midst of its debt service obligations. 

 

What is this Currency Swap Arrangement (CSA)? 

  • It is an arrangement between two friendly countries to involve in trading in their own local currencies. 
  • As per the arrangements, both countries pay for import and export trade at the predetermined rates of exchange, without bringing in third country currency like the US Dollar. 

 

RBI’s Framework for Swap Facilities for SAARC: 

  • The SAARC currency swap facility came into operation on 15th November, 2012. 
  • The RBI can offer a swap arrangement within the overall corpus of USD 2 billion. 
  • The swap drawals can be made in US dollar, euro or Indian rupee. The framework provides certain concessions for swap drawals in Indian rupee. 
  • The facility will be available to all SAARC member countries, subject to their signing the bilateral swap agreements. 

 

Insta Curious: 

Do you know what a Plain Vanilla Financial instrument is? Read Here

 

InstaLinks: 

Prelims Link: 

  1. What is Currency swap? 
  2. How is it done? 
  3. About SAARC Swap facility. 

Mains Link: 

Discuss the significance of Currency Swap Arrangement. 

Sources: the Hindu.