Proposed Currency swap agreement among SAARC nations

It can bring smooth and beneficial business relation

 Currency swap agreement among SAARC countries is the one multi effective proposal by India. SAARC countries Currency swap agreement will help to increase business volume and growth.   While addressing a conference on economic integration of South Asia, Mr  Ranjan Mahanti the Foreign Secretary of India said that India is spearheading efforts to finalise an agreement for SAARC central banks to establish a currency swap arrangement as a baseline measure that would provide funds to SAARC states to defend their currencies when faced by special exigencies. Mr. Mahanti also said Policies would be made by each country based on their laws but once we have policies in place which are in line with international practices, we should not allow non-economic considerations to affect in functioning of commercial entities in each others' country.

It is important to understand that how Currency swap agreement among SAARC countries will help the business growth. Currency swap agreement is such a system by which two parties can loan for equivalent aspects with net present value lent in another currency. For an example, suppose an India based company needs Japan’s Yen and a Japan based company needs INR then they can arrange funds by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange.

This helps the companies to avoid currency fluctuations. This is a perfect instrument to hedge the foreign exchange risk for any company.  Companies can perform their business with more profitability. It is also a confirmation for the both business establishment of both countries, which required liquidity  that will be available in their preferred currency. But an important thing to look at that every country should structure a legal parameter for Currency swaps agreement for any kind of misuse. It should use for only business consideration. In this case every country may categorised type of economic consideration they will allow Currency swap. 

 Many countries use this agreement for interrogated business benefit. If all SAARC central banks able to come together the Currency swap agreement then business growth of the region will increase sharply. The Reserve Bank of India on 4 December 2012 signed a three -year Bilateral Swap Arrangement with the Bank of Japan. This will help to short- term liquidity problem. South Korea and China also singed a currency swap agreement in recent times. It is a timely and relevant approach. The SAARC central banks should take initiatives for purpose. Hopefully it will bring new commercial growth in the region.       

At present relation between India and Bangladesh is going through a topsy turvy situation as India is reaching out its hand to both Sk. Hsina and Khaleda Zia  to make a balance. Currency swap agreement between this two countries, without doubt, will have a significant role to raise Indo-Bangla relation to a new height. 

By-A .C