In a bid to bring stability to the financial markets, the Indian and Japanese Governments have decided to expand their bilateral currency-swap arrangement from $15 billion to $50 billion.
A bilateral currency swap agreement will allow us to pay for imports in these nations’ currencies, rather than in dollars, up to the mutually agreed threshold, according to India Forex Advisers.
Such agreements will help reduce the demand for dollars in the short term and boost exports. This kind of agreement can be an effective hedge against the volatility in the forex markets, and India should only enter into such agreements with countries with which it does not have a big trade imbalance, said the forex advisory firm.
To finalise terms
The Government and the Reserve Bank of India will discuss and finalise the terms of the enhancement in the currency-swap arrangement with their Japanese counterparts.
In December, 2012 a bilateral swap agreement was signed between the Bank of Japan and the Reserve Bank of India for US$ 15 billion. This arrangement, aimed at addressing possible short-term liquidity mismatches and supplementing existing international financial arrangements, is part of the effort to strengthen mutual cooperation between Japan and India.
India Forex Advisors also said the Government should consider investment-led trade with China as it is one of our major trading partners, so that the latter relocates its industry here and imports from India.