India-Japan Sign Currency Swap Deal

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June 30 – India and Japan inked a blockbuster currency swap deal on Sunday aimed at addressing short-term liquidity difficulties, the Reserve Bank of India (RBI) said.

The deal which enables both countries to swap yen or rupee against the U.S. dollar for up to $3 billion, was signed by Reserve Bank of India Governor Yaga Venugopal Reddy and Bank of Japan Governor Masaaki Shirakawa at Basel, Switzerland. This is India's first currency swap deal. Japan, however, has swap agreements with countries such as China, South Korea and Thailand.

The deal allows Japan to accept rupees and give US dollars to India if the need arises and India too will accept yen against dollars. However, drawing beyond 20% of the stipulated amount ($3 billion) would require India to have an IMF (International Monetary Fund)-support programme.

"As the arrangement is just for $3 billion and India has over $300 billion foreign exchange reserves, it is more a milestone in mutual co-operation between the two countries than a tool to address liquidity difficulties. However, such an arrangement will help concerned nations to have stability in financial market," sources said.

Following the Ranbaxy – Daiichi deal, India has gaied a lot of ground in Japan. A recent survey conducted by the Japan Bank for International Cooperation (JBIC) shows that India has become the most-favoured destination for long-term Japanese investment.

While nearly 70% of Japanese manufacturers regard India as the most attractive country to do business over the next 10 years, around 67% preferred China. Russia came third with a 37% rating, followed by Vietnam at 28% reported the Economic Times.