India & Japan sign $75 bn currency swap agreement

30 Oct '18

2 min read

Prime Minister Narendra Modi at the Tete-a-tete with the Prime Minister of Japan Shinzo Abe, in Yamanashi, Japan. Courtesy: PIB

India and Japan have signed a $75 billion bilateral currency swap agreement. As per the deal the Bank of Japan will accept Indian rupees and give US dollars to the Reserve Bank of India (RBI) in exchange and, similarly, the RBI will take the Japanese yen and give US dollars to the Bank of Japan to stabilise each other’s currency in a contingency.

The deal can especially be useful for India when the government has insufficient cushion to finance current account deficit (CAD).

The announcement about the agreement was made after the conclusion of the annual summit meeting between the visiting Indian Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe.

In the past, India had similar currency swap agreements with Japan, but they were for lesser amounts. The last such pact was in 2013 when the RBI and the Bank of Japan had agreed to enhance the amount to $50 billion from the earlier $15 billion.

The India-Japan Vision Statement released after the annual bilateral summit said, “With a view to enhancing financial and economic cooperation, governments of Japan and India welcomed the agreement to conclude a Bilateral Swap Arrangement (BSA) of $75 billion.”

India’s finance ministry said the currency swap agreement should “aid in bringing greater stability to foreign exchange and capital markets in India...This facility will enable the agreed amount of foreign capital being available to India for use as and when need arises.”

The facility will also help in bringing down the cost of capital for Indian entities while accessing foreign capital market, it added.

Last week, Japan had signed a similar $30 billion currency swap pact with China. (RKS)

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