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News: India approved Rs. 30 billion withdrawal for Maldives under SAARC Currency Swap Framework, reaffirming financial support and regional cooperation commitment.
About SAARC Currency Swap Framework
- SAARC currency swap framework provides SAARC countries a line of funding for short-term foreign exchange requirements.
- Currency Swap Framework: It is a contract between countries to exchange currencies with predetermined terms for liquidity support. It helps meet short-term foreign exchange needs and avoid balance of payments pressure without market risks.
- Purpose: It aims to strengthen regional financial cooperation, promote integration, and support economic stability during external stress while enhancing India’s ties with neighbouring countries.
- Structure: It operates through bilateral agreements between the RBI and SAARC member central banks.
- Swap Window: The framework includes an INR Swap Window of ₹25,000 crore along with an existing USD/Euro Swap Window of $2 billion, operated through central banks.
- Key Aspects:
- Liquidity Support: It allows access to foreign exchange during stress without relying on commercial borrowings.
- Pre-determined Terms: It carries no exchange rate or market risks as terms are fixed in advance.
- Regional Integration: It promotes inter-dependence and strengthens cooperation among SAARC countries.
- INR Promotion: It encourages drawals in Indian Rupee to support its internationalisation.
- Significance: It ensures financial stability and strengthens India’s economic and strategic ties with South Asian neighbours.
About SAARC
- The South Asian Association for Regional Cooperation (SAARC) is a regional intergovernmental organisation of eight nations in South Asia.
- Establishment: It was established on 8 December 1985 in Dhaka to promote regional cooperation and economic growth.
- Members: It includes eight countries, namely Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
- Secretariat: It is located in Kathmandu, Nepal.
- Principles: It follows unanimity in decisions and excludes bilateral and contentious issues from deliberations.
