•What is a currency swap?
Negotiated deal with the US wherein the RBI gets a dollar line of credit that it can tap if there is any sudden and huge demand for dollars either by India Inc or other liabilities. India can also strike a euro swap with the European Central Bank.
•What could be the size of such a swap?
US Fed inked swap arrangement with Brazil, Korea, Mexico and Singapore for $30 billion. It could be similar or more for India.
•How does it help?
In last six months, India’s forex reserves have dipped by $60 billion to $246 billion. A swap will be a cushion giving dollar power. It’s also about perception given that India’s one-year liabilities are to the tune of $ 65 billion. Boosts foreign exchange market sentiments, investor confidence, acts like a second line of defence
•Does India need to exercise it?
No. It’s essentially a stand-by facility. Swaps are powerful instruments put up by countries, not necessarily to use them. But they are effective back-stopping devices.
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