The decision of the Reserve Bank of India (RBI) to inject rupee liquidity through long-term foreign exchange swap a first of its kind in liquidity management.

Currency Swap Agreements:

A Currency swap agreement is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.

How Currency Swap Agreement can benefit India?

• The currency swap facilities make it easier for India to pay for its imports. This aids in addressing the challenge of depreciation.
• Since the Currency swap agreement involves trading in local currencies. Countries pay for imports and exports through their own currencies rather than involving a third country currency. This does away with the charges involved in multiple currency exchanges.
• The currency swap makes it easier to improve
• liquidity conditions.
• Currency swap agreements help in saving for a rainy day when the economy is not looking in good shape.
• Currency swap agreements help in saving for a rainy day when the economy is not looking in good shape.
• The agreement aids in improving the confidence in the Indian market.
• Together with ensuring that the agreed amount of capital is available to India, it also brings down the cost of capital for Indian entities while accessing the foreign capital market.