2019 Swap Agreement

As part of 2019-22, the RBI will continue to offer swap arrangements within the total corpus of $2 billion. Draws can be made in US dollars, euros or Indian rupees. The framework provides for certain concessions for swap draws in Indian rupee. The ECB set up swap lines with Sweden in December 2007, with the SNB and Denmark in October 2008 and with the Bank of England in December 2010. The euro area, Sweden, Denmark and the United Kingdom had relatively low foreign exchange reserves that entered the crisis due to the costs of maintaining reserves and the belief that more was unlikely to be needed in the near future. However, in the years leading up to the crisis, banks in these countries borrowed large sums in foreign currency. When they struggled to borrow money in 2008, they turned to their central banks, whose reserves proved insufficient to meet unexpected demand. The ECB`s swap lines were therefore put into operation in 2009 in order to provide euros to Sweden and Denmark for the depletion of their foreign exchange reserves, and the exchange line with the SNB was invited to provide Swiss francs to the ECB. The swap line with the Bank of England was set up as a precautionary measure to ensure that the Central Bank of Ireland, which is part of the Eurosystem, had access to the pound sterling, but it was never used. Since 2007, Sweden and Denmark have more than doubled their foreign exchange reserves, Britain has doubled its reserves and the euro area has increased its reserves by 20%. The European Central Bank (ECB) and the People`s Bank of China (PBC) have decided to extend their bilateral currency exchange agreement on unchanged terms for a further period of three years, until 8 October 2022. On 12 December 2007, the Federal Bank of Germany extended swap lines to the European Central Bank (ECB) and the Swiss National Bank (SNB).

Demand for dollars from European banks has increased and the volatility of interest rates in US dollars has increased. Swap lines are expected to “cope with increased pressure on short-term refinancing markets,” without the Fed having to directly fund foreign banks. The Reserve Bank of India (RBI) has signed a currency swap agreement with the Central Bank of Sri Lanka, the Central Bank said on Monday. The Central Bank of Sri Lanka can draw US dollars, euros or Indian rupees in several tranches, up to a maximum of $400 million, or their equivalent under a currency swap arrangement, the RBI said in a press release. . . .