The currency swap agreement will allow the Indian Central Bank to obtain up to $75 billion in yen or dollars in credit from the Japanese government whenever it needs the money. The RBI can sell these dollars (or yen) to either importers to pay their bills or to borrowers to repay their foreign loans. The RBI can even hold on to the money to support its own foreign exchange reserves and to defend it in rupees. If the Central Bank of Japan were to knock on India`s doors for a $75 billion loan, the RBI will also be required to make it available to Libor on its own reserves. Read also: Rupee Rescue: India and Japan Sign Record $75 Billion Currency Exchange Agreement During his recent visit to Japan, Prime Minister Narendra Modi signed an agreement for a bilateral sweatshirt agreement in addition to discussing ball trains and yen loans with his Japanese counterpart. Although India has such agreements with many Asian nations, it is one of the largest of these agreements, which are valued at $75 billion. The government hopes the agreement will serve as a buffer to support the rupees, which have depreciated by 14% against the dollar this year. The Ministry of Finance stated that the monetary sweavis agreement would allow India “to attract foreign capital if necessary and would help reduce the cost of funds for Indian companies while having access to the foreign capital market.” India offers such bilateral swaps to countries in the ASARC region. The facility will serve as the second line of defence for the rupees after the RBI`s $393.5 billion in foreign exchange reserves. However, foreign exchange reserves, which provide the central bank with a buffer to cope with the high volatility of foreign exchange markets through controlled sales, have continued to decline. According to the RBI, foreign exchange reserves decreased by $942 million in the week ended October 19, after posting a sharper decline of $5.14 billion the previous week. The currency swap contract not only supports the rupees, but also increases foreign exchange reserves. The bilateral currency exchange agreement will also increase India`s foreign exchange reserves (FOREX).
India`s FOREX reserves have fallen since the peak of $426.08 billion in April 2018. This is because the RBI has sold reserves of U.S. dollars to limit the depreciation of rupees.