India looks to secure Dollar Swap Line 

India looks to secure Dollar Swap Line 

Part of: GS Prelims and GS-II – International Relations & GS-III – Economy

In News:

• India is working with the United States to secure a dollar swap line.
• It would help in better management of its external account.
• It would also provide extra safeguard in the event of an abrupt outflow of funds due to coronavirus-led lockdown.

Important value additions:

Currency swap agreements 

• Such agreements involve trade in local currencies, where countries pay for imports and exports at pre-determined rates of exchange without the involvement of a third country currency like the US dollar.
• India already has a $75 billion bilateral currency swap line with Japan.
• The Reserve Bank of India also offers similar swap lines to central banks in the SAARC region within a total corpus of $2 billion.
• Benefits:

• • These swap operations carry no exchange rate or other market risks, as transaction terms are set in advance. 
  • It reduces the risk of volatility against the third currency.
  • It does away with the charges involved in multiple currency exchanges.
  • It would discourage speculative attacks on the domestic currency.