Our Bureau

New Delhi, March 27 India and Japan would now be able to formalise the proposed bilateral currency swap agreement, with the Union Cabinet today giving its nod for such an agreement. This is expected to help both the countries tide over any short-term balance of payments (BoP) crisis.

In August 2007, during the New Delhi visit of then Japanese Prime Minister, Mr Shinzo Abe, both sides had agreed to sign a bilateral currency swap agreement. On Thursday, the Union Cabinet authorised the Reserve Bank of India to sign the currency swap agreement with Bank of Japan.

Under the agreement, India and Japan will help each other if their currency were to come under attack from speculators. India or Japan could exchange $3 billion against the respective domestic currency for mitigating any short-term BoP problem.

The currency swap agreement is an additional arrangement outside IMF to meet for short-term liquidity in dollars during a BoP crisis, an official spokesperson said. The actual draw-down would be made by the RBI when the Government judges that it should be drawn down, after consulting the Central Bank.

The currency swap agreement is seen as a cost-effective tool for achieving the strategic objective of demonstrating regional co-operation. Japan had already signed similar deals with other Asian countries, including Thailand, South Korea, China, Malaysia, Singapore and Indonesia.

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