G-20: India-Japan enhance currency swap to $50 bn

**St. Petersburg:**India and Japan are set to increase their existing currency swap facility, a move that Indian government officials here at the ongoing G-20 Summit describe as a “important signal” for the rupee.

The existing swap facility of $ 15 billion with Japan, which was agreed upon last year, was enhanced to $50 billion.

The proposal is part of the discussion agenda for the bilateral meeting that Indian Prime Minister Manmohan Singhhad with Japan’s deputy prime minister Tar? As?.

At the end of the bilateral meeting, the joint press statement of the two countries said they had decided to expand the current bilateral currency swap arrangement from $ 15 to $ 50 billion. “The two governments expect that this will contribute to the stability of global financial markets including emerging economies”, the statement said, adding that it was important to continue reforms in financial and investment sectors for promoting stable and long term capital inflows into India. This, the two nations believe, would strengthen the bilateral financial cooperation between Japan and India.

The key benefit of this swap facility, which is yet to be utilized and in the words of Montek Singh Ahluwalia would be to build a strong “second line of defence for the rupee”. Ahluwalia, who is India’s Sherpa at the Summit, made it clear that “India does not need to draw down on facility”. The swap facility, he said, can only be used when the reserves dip beyond a comfortable level. India currently has around $280 billion of foreign exchange, a reserve that is enough to cater to around seven months of the country’s annual import bill.

The enhanced Yen swap facility would therefore add “firepower” to India’s reserves and send a signal to the markets that India has enhanced ability to defend its exchange rate, if the need arises. The underlying theme of this proposal is to improve sentiment on the exchange rate, the officials added.

Meanwhile, the G-20 Summit, which is underway here, continues to be dominated by the civil strife in Syria and the increased possibility of a US intervention in the troubled nation. Russia is opposed to any form of US intervention, even as India wants the United Nations to coordinate and lead the process of discovering the truth about the alleged use of chemical weapons in Syria.

PM Singh spoke about this at a dinner meeting of G-20 leaders held here on Thursday and it is believed that the final Summit declaration would make some sort of statement on the matter.