Thursday, August 23, 2007

India-Japan Agree On Currency Swap

India and Japan have agreed to sign a basic bilateral agreement on currency swap, which will add to a regional network of such accords designed to provide emergency financial liquidity to either or both parties in times of currency market or other turbulence. A basic agreement has been reached on bilateral currency swap in response to short term liquidity crunch, Japanese Prime Minister Shinzo Abe said on Wednesday, while speaking at an interactive session with business leaders from the two countries organised by apex industry chambers.

Though he did not elaborate on the issue, sources said as per the agreement, India and Japan will help each other if their currencies were to come under the attack of speculators. It will also enable both countries to swap foreign currencies like US dollar or Euro to maintain the value of Rupee and Yen in foreign exchange markets. Sources said the Reserve Bank of India and Bank of Japan would be the nodal agencies, going by such agreements that Japan has entered into with other countries. Japan has swap deals with other Asian countries like Thailand, Korea, China, Malaysia, Philippines, Singapore and Indonesia. In some cases, the swap is one way, while in some others it is two-way. Japan and Thailand signed such an agreement in July, under which Bangkok can swap up to $6 billion while Tokyo can swap up to $3 billion in case there is need for short-term liquidity.

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