India and Japan inked a $75 billion bilateral currency swap agreement during Prime Minister Narendra Modi’s ongoing visit to Tokyo, the Indian government announced on Monday.
“The Prime Ministers of India and Japan, building on great friendship between the two countries and to further strengthen and widen the depth and diversity of economic cooperation, agreed during Prime Minister Modi’s visit to Japan, to conclude a Bilateral Currency Swap Agreement for an amount of $75 billion,” the Indian government said in a statement.
“This swap arrangement particularly reflects the depth of mutual trust and understanding, personal relationship and warmth between the two leaders built over many years,” the statement added.
“This New Swap Agreement should aid in bringing greater stability to foreign exchange & capital markets in India,” the Indian finance ministry said in a tweet.
Under the arrangement, India can acquire dollars from Japan in exchange for rupees while Japan can seek dollars from India in exchange for the yen, The Economic Times reported.
Japan had offered a $50 billion currency swap in 2013 and, before that, one for $3 billion in 2008.
Japanese Finance Minister Taro Aso said on Tuesday that a currency swap agreement it signed with India was intended to function as a safety net in case of a financial crisis, Reuters reported.
The agreement is being seen as another important measure towards improving confidence in the Indian market. Foreign investors have pulled out a massive Rs 35,600 crore from the Indian capital markets in the month so far - against Rs 21,000 crore net withdrawals in September - on concerns over rupee depreciation, global trade war tiff and rising crude prices.
It is also being expected that currency swap arrangement will provide a major impetus to the two-way investment as during the two-day visit of PM Modi, a number of agreements were signed between corporate entities of India and Japan. 57 Japanese companies have agreed to make the investment in India and 15 Indian companies are to make an investment in Japan, supported by both the governments of India and Japan.
Currency swap agreements involve trading in the local currencies, where countries pay for import and export trade, at the pre-determined rates of exchange, without bringing in third country currency like the US dollar.
With agency inputs