The Union Cabinet had approved a new Framework on Currency Swap Arrangement with which regional bloc for the period 2024 – 2027 ?

Correct — A, (a) South Asian Association for Regional Cooperation (SAARC). The Framework on Currency Swap Arrangement for the period 2024 to 2027 is the SAARC currency swap framework. What a currency swap arrangement does is straightforward. A central bank facing a short-term shortage of foreign exchange — an import bill that must be paid, a maturing external obligation, a balance-of-payments squeeze — can draw a foreign currency from a partner central bank against its own currency, on an agreement to reverse the exchange at a specified date and rate. It is a backstop line of liquidity, not aid and not a loan in the ordinary sense, and it is designed for the interval before a longer-term arrangement can be put in place. The SAARC facility began operating on 15 November 2012, with India as the provider, and it has been renewed in successive three-year frameworks. The framework for 2024 to 2027 was put in place by the Reserve Bank of India with the concurrence of the Government of India and announced in June 2024. Its distinguishing feature is the addition of a separate INDIAN RUPEE SWAP WINDOW, carrying concessions for swap support in rupees, with a corpus of ₹ 250 billion — that is, ₹ 25,000 crore — alongside the continuing US Dollar and Euro window with an overall corpus of two billion US dollars. Drawings are made under bilateral swap agreements that the Reserve Bank signs with the central bank of each SAARC country that wishes to use the facility. The rupee window is the policy point. Offering swap support in rupees on concessional terms encourages the settlement of regional trade in rupees and reduces the dollar demand a neighbouring central bank must satisfy in a crisis; it is part of the same policy direction as the vostro-account arrangements for rupee trade settlement. SAARC's members are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, and the facility is available to any of them that signs the bilateral agreement.

Why the others are wrong

• (b)African Union (AU) — The African Union is a continental body of fifty-five member states, established in 2002 as the successor to the Organisation of African Unity of 1963, with its headquarters at Addis Ababa. India's engagement with it is real and growing — the India-Africa Forum Summits, lines of credit through the Exim Bank, the duty-free tariff preference scheme for least developed countries, and India's sponsorship of the African Union's admission to the G20 as a permanent member at the New Delhi summit of 2023. But the Reserve Bank's currency swap framework is a SAARC instrument, built for India's immediate neighbourhood, and there is no comparable standing swap facility for the African Union.
• (c)Association of Southeast Asian Nations (ASEAN) — The Association of Southeast Asian Nations, founded in 1967 by the Bangkok Declaration and now ten members, is India's partner in a wide range of economic arrangements — a strategic partnership, the ASEAN-India Free Trade Area in goods and the accompanying agreements in services and investment, participation in the East Asia Summit and the ASEAN Regional Forum, and the Act East policy that frames the whole relationship. It is therefore the most plausible of the three wrong options. What it does not have is a Reserve Bank currency swap framework of this kind. India's bilateral swap arrangements outside SAARC exist, notably with Japan, but they are bilateral rather than a framework offered to a bloc.
• (d)European Union (EU) — The European Union has twenty-seven members and a single currency shared by twenty of them, and its central banks operate their own swap lines through the European Central Bank with major counterparts such as the United States Federal Reserve. It is not a recipient of an Indian liquidity backstop and would have no use for one, since the euro is itself a reserve currency. India's relationship with the Union runs through trade and investment negotiations, the Trade and Technology Council and cooperation on connectivity and technology, not through balance-of-payments support. The option belongs in the set because it names a familiar bloc, but the direction of a swap framework of this kind is from a larger economy to smaller neighbours.

A currency swap arrangement between central banks is a facility by which one central bank provides foreign exchange to another against the latter's own currency, for a defined period and at agreed terms, to be reversed on maturity. Its purpose is to meet short-term foreign-exchange liquidity needs or a balance-of-payments difficulty until longer-term arrangements can be made. The SAARC Currency Swap Facility came into operation on 15 November 2012 with India as the provider, and it is renewed by successive frameworks; the one announced in June 2024 covers 2024 to 2027. It is operated by the Reserve Bank of India with the concurrence of the Government of India, and it has two windows: a new Indian Rupee Swap Window with a corpus of ₹ 250 billion and various concessions for support taken in rupees, and the continuing US Dollar and Euro Swap Window with an overall corpus of two billion US dollars. Drawings are made under bilateral swap agreements signed with individual SAARC central banks. SAARC itself was established by the Charter signed at Dhaka on 8 December 1985, has its Secretariat at Kathmandu, and comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka; its summit process has been in abeyance since the 2014 Kathmandu summit, which makes the swap framework one of the few limbs of SAARC cooperation that has continued to operate. India has used it in recent years to support Sri Lanka and the Maldives, and it sits alongside the broader push to settle trade in rupees through special vostro accounts.

Key facts

• The Framework on Currency Swap Arrangement for the period 2024 to 2027 is for the SAARC countries.
• It was put in place by the Reserve Bank of India with the concurrence of the Government of India and announced in June 2024.
• It introduced a separate Indian Rupee Swap Window with a corpus of ₹ 250 billion and concessions for support taken in rupees.
• The US Dollar and Euro Swap Window continues with an overall corpus of two billion US dollars.
• Drawings are made under bilateral swap agreements signed by the Reserve Bank with individual SAARC central banks.
• The SAARC Currency Swap Facility came into operation on 15 November 2012 to provide a backstop line of funding for short-term foreign-exchange liquidity requirements or balance-of-payment crises.
• SAARC's members are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
• SAARC was established by the Charter signed at Dhaka on 8 December 1985 and its Secretariat is at Kathmandu.
• The rupee window supports the broader policy of settling regional trade in rupees.

Common traps

• Choosing ASEAN because India's economic engagement with it is larger. The swap framework is a SAARC instrument.
• Choosing the European Union, which needs no liquidity backstop from India.
• Confusing the rupee window's corpus of ₹ 250 billion with the dollar-euro window's two billion US dollars.
• Assuming SAARC's dormant summit process means its instruments have lapsed. The swap facility has continued through successive frameworks.

No directly related past PYQ was found.

• practice — not a real PYQ

  The SAARC Currency Swap Facility, operated by the Reserve Bank of India, came into operation in :

  • (a)2005
  • (b)2012
  • (c)2018
  • (d)2024

  Answer(b) 2012

• practice — not a real PYQ

  Under the SAARC Currency Swap Framework for 2024 to 2027, the corpus of the Indian Rupee Swap Window is :

  • (a)₹ 100 billion
  • (b)₹ 250 billion
  • (c)₹ 500 billion
  • (d)Two billion US dollars

  Answer(b) ₹ 250 billion