Currency Exchange Facility for SAARC Countries

Reference

• Recently, the Reserve Bank of India (RBI) has decided to prepare a revised framework on currency swap arrangement for SAARC countries for the period 2024-2027.
• Under this framework, the Reserve Bank will enter into bilateral swap agreements with SAARC Central Banks wishing to avail the swap facility.

New framework for exchange

• A separate INR Exchange Window has been introduced with various concessions to support exchange in Indian Rupees under the framework of 2024-27.
  • In fact, a total of Rs 250 billion is available under this facility.
• In addition, RBI will also continue to offer swap arrangements in US Dollars and Euros under a separate US Dollar/Euro swap window, with a total corpus of US$ 2 billion.

Countries eligible for exchange facility

• This currency swap facility will be available to all SAARC member countries that have signed bilateral swap agreements.
• It is known that the SAARC Currency Swap Facility came into effect on November 15, 2012. Its objective was to provide a backstop line of financing for short-term foreign exchange liquidity needs or balance of payment crises of the SAARC countries until long-term arrangements are in place.

What is currency exchange facility?

• A cross-border currency swap is an agreement between two entities in which one agrees to provide a loan in a foreign currency to the other.
• In this, repayment is in a different currency at a fixed date and exchange rate. The interest rate charged on such loans is usually lower than the interest rate available in the foreign market.
• Since 2018, India has agreed to sign currency swap agreements with 23 countries.

About South Asian Association for Regional Cooperation (SAARC)

• Established: 8 December 1985 with the signing of the SAARC Charter in Dhaka.
• Secretariat: Established on 17 January 1987 in Kathmandu, Nepal.
• Member Country :  8 members.
  • The names of these countries are Afghanistan, Pakistan, India, Nepal, Bhutan, Bangladesh, Sri Lanka And Maldives.
• Observers: The European Union, Australia, China, Iran, Japan, Republic of Korea, Mauritius, Myanmar and the United States have observer status in SAARC since 2006.
• Objective :
  • Promote the welfare of the people of South Asia and improve their quality of life
  • Accelerating economic growth, social progress and cultural development in the region
  • Providing all individuals with the opportunity to live with dignity and realise their full potential
  • Strengthen cooperation with other developing countries and collaborate with international and regional organizations with similar goals and objectives
• SAARC has designed and implemented a regional SAARC COVID-19 Emergency Fund of about US$ 22 million to promote cooperation among its member countries.

Structure of SAARC

• Decision Making Process:
  • The meetings of the Heads of State or Government of the Member States are the highest decision-making body under SAARC and decisions at all levels are taken on the basis of consensus.
  • Further, bilateral and contentious issues are excluded from the Association's deliberations.
• Organization of summits: Summits are usually held biennially, in alphabetical order by member country.
  • The member country hosting the summit assumes the presidency of the Union.
• The last SAARC Heads of State Meeting was held in Kathmandu in 2014. Since then Nepal has been hosting the SAARC Foreign Ministers Informal Meetings every year.
  • The last meeting of Foreign Ministers was held virtually in Kathmandu in September 2020 during the United Nations General Assembly meeting.