07 March, 2020
3 Min Read
Syllabus subtopic: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.
Prelims and Mains focus: about the currency swap agreement and its significance
News: Reserve Bank of India (RBI) governor made a case for international multilateral agencies like the International Monetary Fund (IMF) launching currency swaps for countries affected by the spread of COVID-19, also known as coronavirus.
A swap line was critical from the point of view of preserving global financial stability. The global economy has been hit hard by COVID-19. According to IMF projections, the outbreak’s impact on the global economy will be 0.1 per cent and 0.4 per cent on the Chinese economy.
What is the benefit?
A coordinated swap line would act as a second line of defence to bolster national reserves across nations.
What is a currency swap agreement?
What is the purpose of currency swap?
1) Exchange cash for cash vs cash for securities;
2) Exchange conditional vs unconditional swaps;
3) Exchange reserve currencies on both sides;
4) Exchange reserve currency for non-reserve currency; and
5) Exchange non-reserve currencies on both sides.
Source: Indian Express
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