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 exchangewithout 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.
