- A currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies.
- The parties are essentially loaning each other money and will repay the amounts at a specified date and exchange rate.
- After this pact, countries don’t require dollars to trade between themselves.
- It supports the national currencies against the dollar.
The Reserve Bank of India has agreed to a $400 million currency swap facility for Sri Lanka till November 2022.
- The RBI’s action follows a recent bilateral ‘technical discussion’ on rescheduling Colombo’s outstanding debt repayment to India which stands at approximately $960 million.
- Earlier, the Sri Lankan Prime Minister had sought a loan moratorium, during his visit to New Delhi