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India could sign currency swap deal with China
August 29, 2013, 8:45 am

[AP]

The Indian rupee has depreciated about 18 per cent against the dollar in the past six months [AP]

India’s Commerce and Industry Ministry has constituted a task force to work out currency swap arrangements with key trading partners.

“We are looking at the possibility (of currency swap arrangements with a few countries),” Indian Commerce and Industry Minister Anand Sharma said on Wednesday.

China has repeatedly shown interest into entering such an agreement with India.

In a bid to provide stability to the falling rupee, and stem the rising trade deficit, the need for a currency swap arrangement was felt, said an official ministry statement.

A country posts a trade deficit when its import bill is bigger than its earnings from exports.

“The purpose of the task force is limited to examine swap of national currency for trade which is distinct from currency swap agreements of Central Banks,’’ the official statement said.

The task force will submit its recommendations to the Indian government in four weeks, added the statement.

Currency swap agreements involve the exchange of one currency for another – a measure made popular after the 2008 global financial crisis.

The US dollar accounts for over 80 per cent of all foreign exchange transactions globally.

The Indian rupee has depreciated about 18 per cent against the dollar in the past six months.

Ajit Ranade, Group Chief Economist of the Indian conglomerate Aditya Birla Group said last year that India should enter into a currency swap agreement with China.

Ranade suggested that Chinese investors put the renminbi [China's official currency] into infrastructure in India and that India later pay the debt back using the same currency.

“It would eliminate currency fluctuation risks and the Chinese investors would be assured of returns, while India would be assured of long-term funds,” he said. “It would be a win-win proposition.”

Meanwhile on Wednesday in New Delhi, the Indian commerce minister said the task force would comprise of “representatives from the Finance and Commerce Ministries, banking sector, and the exporting community”.

India currently has currency swap agreements in place with Japan and neighbouring Bhutan.

Federation of Indian Export Organisations (FIEO) President Rafeeque Ahmed said India could look at currency swap arrangements with China, Japan and the European Union, among other nations.

The rupee on Thursday recovered from its all-time low by rising 170 paise to 67.10 against the dollar in early trade at the forex market on fresh selling of the US currency by exporters and banks amid new measures announced by the Reserve Bank of India to check the free-fall of the currency.

With inputs from Agencies

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