The bilateral currency exchange agreement will also increase India`s foreign exchange reserves (FOREX). India`s FOREX reserves have fallen since the peak of $426.08 billion in April 2018. This is because the RBI has sold reserves of U.S. dollars to limit the depreciation of rupees. With the Swea-exchange agreement, India will have an additional $75 billion in foreign capital whenever it takes. It will reduce the costs of accessing foreign capital. The RBI also proposes similar swap lines for central banks in the SAARC region for a total of $2 billion. As part of 2019-22, the RBI will continue to offer a swap agreement within the total corpus of $2 billion. Other countries can withdraw money in U.S. dollars, euros or Rube Indian. This mechanism was initially put into service on November 15, 2012 to provide a backstop financing line for short-term liquidity needs or balance-of-payments crises until longer-term arrangements are made.
In the past, Japan has also signed currency exchange agreements with China, Malaysia, Singapore, Indonesia and Thailand. The facility is made available to all SAARC member countries, subject to the signing of bilateral swap agreements. The government has agreements with some 23 countries with which Indian importers and exporters can trade in local currencies, which has eliminated dependence on foreign currencies such as the U.S. dollar. On March 19, 2020, the United States opened temporary swap agreements with central banks in Australia, Brazil, Denmark, South Korea, Mexico, Norway, New Zealand, Singapore and Sweden, which are expected to be in effect for a total of $450 billion for at least six months. The Indian currency is still overvalued and is expected to depreciate further, so a fixed exchange rate will benefit India and reduce THE risks associated with FOREX. Update on 31.07.2020: India launched a $400 million foreign exchange swaquage mechanism under ASAC in Srilanka in July 2020. Bilateral demand for a $1.1 billion swap is also under consideration. This story was published from a wireless agency feed without changing the text. Only the title has been changed.
Under the swap agreement, a country provides dollars to a foreign central bank which, at the same time, puts the corresponding funds in its currency at the first bank, based on the exchange rate of the market at the time of the transaction. The parties agree to exchange these quantities of their two currencies at some point in the future, i.e. the next day, or even two years later, using the same exchange rate as in the first transaction.