Update on 31.07.2020: India launched a $400 million foreign exchange swaquage mechanism under ASAC in Srilanka in July 2020. Bilateral demand for a $1.1 billion swap is also under consideration. 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. India and Japan signed a currency exchange agreement during Prime Minister Modi`s visit to Japan on October 28, 2018. The currency exchange agreement is worth $75 billion and is a great opportunity for India to obtain foreign currency by trading rupees in Japan. While the RBI had accumulated foreign exchange reserves of more than $426 billion until April 2018, it had to find some of it in recent weeks to support the rupees. Although the current foreign exchange reserves of more than $390 billion are still comfortable, a $75 billion loan from Japan gives the RBI an additional buffer that it can use if it needs additional dollars. NEW DELHI (Reuters) – India and Japan signed a $75 billion bilateral currency exchange agreement on Monday during Prime Minister Narendra Modi`s visit to Tokyo, according to a statement from India. Currency sweatshirts between countries work in the same way, except that in a bilateral agreement, the two countries are expected to play a rich uncle to each other. Update on 14.04.2020: India is discussing a bilateral sweatshirt line with the United States.
But we also need something for Japan. Currency exchange will boost trade between India and Japan. It also has political consequences. Japan has bought India`s goodwill and will await its support in international forums. The bilateral currency exchange agreement will also increase India`s foreign exchange reserves (FOREX).