The banks of India and Japan announced today the signing of a new currency swap agreement for up to $15 billion over the next three years. Known as a bilateral swap arrangement (BSA), this will allow the Reserve Bank of India and the Bank of Japan to exchange their own currencies, either yen or rupees, against the U.S. dollar. The hope is that this can improve liquidity and strengthen each other’s currencies.
The Japanese yen, with the Indian rupee as well, has been maintaining its strength against the U.S. dollar and other currencies for some time now, and the situation has only been made worse with the debt crisis in the euro zone. The arrangement begins today, December 4th, and is the second currency swap between the two countries, after their 2008 to 2011 agreement for $3 billion. A statement from the Reserve Bank of India said that this mutual cooperation between Japan and India will strengthen their bilateral ties and supplement existing international financial arrangements.
RBI Governor D Subbarao and BOJ Bank of Japan Governor Masaaki Shirakawa each signed the arrangement on Tuesday. Normally a BSA is activated when an International Monetary Fund program is already in place or will be established in the near future, however as much as 20% of the maximum amount of drawing can be paid out without such an arrangement.[via Live Mint]