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DAILY NEWS ANALYSIS

  • 07 February, 2021

  • 4 Min Read

Currency Swap Agreement between SL & India

The Central Bank of Sri Lanka (CBSL) settled a $400 million currency swap facility from the Reserve Bank (RBI) of India.

What is a Currency Swap Facility?

  • The term swap means exchange.
  • Under this agreement, two contracting countries loan each other a specified amount in local currencies.
  • Currency swap agreements involve trade in local currencies, where countries pay for imports and exports at pre-determined rates of exchange without the involvement of a third country currency like the US dollar.

Benefits of Currency Swap facility:

  • The swap operations carry no exchange rate or other market risks. The transaction terms are set in advance.
  • It reduces the need of maintaining foreign exchange reserves for bilateral trade. Thus, it promotes bilateral trade.

Source: TH


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