WHAT IS CURRENCY SWAP DEAL BETWEEN INDIA & JAPAN?

HOW WILL INDIA BE BENEFITED?

It is a deal made between the central banks of India and Japan, to prevent the
fall of Rupee and Yen, due to speculative trading @Forex Markets.
Currency swap agreement
Means that Japan will accept rupees and give dollars to RBI up to a stipulat
ed limit, and similarly RBI will take yen and send dollars to Japan if speculato
rs seek to thrash down the respective currencies.
Currency swap would take place between the Reserve Bank of India and its cou
nterpart in Tokyo, the Bank of Japan.
The two central banks would give each other dollars to stabilize their curre
ncies, in case of need.
A dollar swap arrangement can help emerging economies as it promises a suppl
y of dollars in an emergency.
The previous currency swap deal between the two nations, signed in 2008, has
expired.
How is India benefited?
Government of India, issues bonds to oil marketing companies
to compensate them for losses on sales of petroleum products below cost.
Oil Companies sell these bonds to LIC, Banks etc to recover the money.
To
prevent the downfall of Rupee, RBI can open a Forex-window, where Oil
cos line up and exchange their oil-bonds in lieu of dollars from RBI.
For
this activity: RBI can exchange its rupees to Japanese bank and get
dollars and then RBI gives that dollars to Oil cos. in lieu of
Government bonds.
Chiang Mai Initiative
(2 marker for GS-Mains)
1997: East Asian countries had a big financial crisis due to speculative for
ex investors.
Under Chiang Mai Initiative in 2010, ASEAN countries + Japan + China + S.Kor
ea have a currency swap agreements.
Chiang Mai is a city in Thailand.
Some GK
1$= about 76 Yen = about 48 Rupees.
1 Yen= about 0.6 Rupees
1$= 6 Yuan
1 Yuan= 7 Rupees