The Sri Lanka-RBI swap agreement was part of the facilities available to SAARC countries in 2020. But there must also be something for Japan. The currency swap will boost trade between India and Japan. This also has political consequences. Japan has bought India`s goodwill and will await its support in international forums. Bhatia added: "It is also true that we have our own difficulties. India`s capabilities are rather limited. New Delhi has thus made a good gesture (currency swap); we can help them within our borders. India`s High Commission in Colombo said the currency exchange agreement would remain available until November 2022. Sri Lanka announced in April that it would reach an agreement with the RBI on a $400 million cross-currency swap under the South Asian Association for Regional Cooperation (SAARC).

Sri Lankan President Gotabaya Rajapaksa made an additional request to India in May for a special currency exchange facility of $1.1 billion. Saarc`s cross-currency swap framework came into effect on November 15, 2012 to provide a support funding line for short-term foreign currency liquidity needs or short-term balance of payments charges until longer-term arrangements are concluded. On March 19, 2020, the United States opened temporary swap arrangements with the central banks of Australia, Brazil, Denmark, South Korea, Mexico, New Zealand, Norway, Singapore and Sweden, which are expected to be in effect for at least six months for a total of $450 billion. Under a cross-currency swap arrangement, the U.S. Federal Reserve provides dollars to a foreign central bank that provides the same amount of funds in its currency. This swap is based on the market exchange rate at that time. The currencies can then be exchanged on a specific date previously agreed at the same exchange rate during the first transaction. During President Gotabaya Rajapaksa`s visit to India last year, he presented the first request for bilateral currency exchange of $1.1 billion. At the time, he also called for a moratorium on sri Lanka`s loan to India, which amounts to about $1 billion. The U.S. Federal Reserve has concluded permanent swap agreements with the various central banks of the world.

However, commercial enterprises such as China, Saudi Arabia, etc. (G-20 group except India) do not have currency swap lines with the US Federal Reserve. The RBI also offers similar swap lines for central banks in the SAARC region in a total corpus of $2 billion. As part of the 2019-2022 framework, RBI will continue to offer a swap arrangement in the total corpus of $2 billion. Other countries can withdraw money in US dollars, euros or Indian rupees. This facility was initially put into effect on 15 November 2012 to provide a support funding line for short-term foreign currency liquidity needs or balance of payments crises until longer-term arrangements have been concluded. Sri Lanka announced on Friday that its central bank would revert to a $400 million foreign exchange swap with the Reserve Bank of India to increase the country`s foreign exchange reserves affected by the COVID-19 pandemic. Central Bank Governor W.D. Lakshman said the country could claim the $400 million foreign exchange swap with the RBI in August 2021.

The RBI also offers similar swap lines for central banks in the SAARC region in a total corpus of $2 billion. What is this currency swap arrangement (CSA)? This agreement between two friendly countries that have regular, substantial or growing trade essentially aims to include trade in their own local currency, both paying for import and export trade at predetermined exchange rates without introducing the currency of a third country such as the US dollar. The Sri Lanka-RBI swap agreement was part of the facilities available to SAARC countries in 2020. A few weeks ago, Sri Lanka entered into a $200 million swap with the Central Bank of Bangladesh. Lakshman said the signing of the agreement for the exchange in Bangladesh will take place soon. Japan has also signed currency exchange agreements with China, Malaysia, Singapore, Indonesia and Thailand in the past. These swap operations do not involve currency or other market risks, as the terms of the transaction are determined in advance. The absence of currency risk is the great advantage of such a facility. This facility gives the country receiving the dollars the flexibility to use those reserves at any time in order to maintain an adequate level of balance of payments or short-term liquidity. "The Reserve Bank of India signs a document on a $400 million currency exchange facility for Sri Lanka by November 2022," the Indian mission tweeted.

"After yesterday`s discussions on debt repayment restructuring, this development is another example of India`s firm commitment to working with #lka after #COVID19SL economic recovery," he said. While Sri Lanka`s foreign exchange reserves stood at $6.7 billion in June 2020, India`s foreign exchange reserves reached a record high of $517.63 billion on July 17. The Fed has already concluded permanent swap agreements with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank. Sri Lanka initially signed the swap agreement, which will be available to SAARC countries in 2020, and repaid it in February 2021 after extending it once. On February 1, the Central Bank of Sri Lanka authorized the RBI`s $400 million currency exchange facility. Central Bank Governor Lakshman said the same exchange could be obtained after August. India already has a $75 billion bilateral currency swap line with Japan, which has the second highest dollar reserves after China. India offers such bilateral exchanges to countries in the SAARC region. The U.S. Federal Reserve has granted the currency swap line to the RBI and other central banks. This provides additional convenience in case of sudden outflow of funds with predetermined conditions.

Previously, the facility was limited to certain central banks around the world and did not include the Reserve Bank of India (RBI). India is considering a $1.1 billion currency swap deal with Sri Lanka as the island nation looks at debt management with India and China, ThePrint has learned. On March 19, the U.S. Federal Reserve announced currency swap arrangements with other central banks around the world to reduce the risk of dollar shortages in global markets. However, at that time, India was excluded from the list. The Reserve Bank of India (RBI) has signed an agreement to expand a $400 million currency exchange facility in Sri Lanka to increase foreign exchange reserves and ensure financial stability in the country, which has been hit hard by the COVID-19 pandemic. .