Main Note - [Bilateral, Multilateral Swaps, LoC, Liquidity Arrangements](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md) 1. 2007 - the Reserve Bank was engaged in negotiation with the [Bank of Japan (BoJ)](Bank%20of%20Japan%20(BoJ).md) for an arrangement of a bilateral currency swap. 1. Deputy Governor Shyamala Gopinath and Sanjay Krishna, Joint Secretary at the Ministry of Finance, were the main negotiators from the Indian side, while the Japanese team was led by Naoyuki Shinohara, Director-General, International Bureau, from the Ministry of Finance. [^1] 2. February 13, 2007 - The first meeting initiated discussions on the modalities of the swap arrangement. 3. [June 30, 2008](RBI_Press%20Release_080630_Signing%20of%20the%20Bilateral%20Swap%20Arrangement%20between%20Japan%20and%20India_RBI.pdf) - After several rounds of discussion, a bilateral swap arrangement (BSA) was finalised. The BSA was signed by Governor Masaaki Shirakawa of the BOJ and Governor Yaga Venugopal Reddy of the RBI in Basel, Switzerland and became effective as of June 29, 2008 4. The BSA enabled both countries to swap their local currencies (i.e., either Japanese yen or Indian rupee) against US dollar, for an amount up to USD 3 billion, to essentially (help India) tide over temporary balance of payments problems. 5. The arrangement aimed at addressing short-term liquidity difficulties and supplementing the existing international financial arrangements, as one of the efforts in strengthening mutual cooperation between Japan and India. 1. The term of the agreement was three years from the date of signing, renewable by the consent of both the parties. 2. **In the history of the Reserve Bank, this was the first swap arrangement of its kind.** RBI was authorised to undertake swap transaction under the RBI Act as the transaction could be viewed as a derivative contract within the meaning of the Act. [^1] 1. The RBI Act does allow RBI to undertake currency swaps. The Legal Department confirmed that the transaction could be viewed as a derivative contract within the meaning of the Act. 6. Terms of the Swap - Apart from conditions that commonly applied to such agreements, there were two important conditions governing the Indo-Japan currency swap agreement. 1. As long as the agreement was in effect, the borrower should have biannual consultations with the lender on economic and financial conditions, based on the information and data supplied to the latter in the specified format on various economic parameters. 2. As long as any monetary obligation under this agreement remained outstanding, the borrower would also not impose any controls on capital outflows. 3. The tenure of the swap was three months, which could be renewed seven times for three months each, meaning the total life of a drawal would be two years. 4. The applicable interest rate was a three-month London Interbank Offered Rate (LIBOR) plus 150 basis points (bps) for the first drawal, the tenure of which was ninety days. Thereafter, starting with the second renewal, the premium added to the LIBOR would increase by 50 bps for every two renewals, provided that such premium shall never exceed 300 bps. There was also a clause of ‘late interest’ on delayed repayment. 5. The interest and late interest would be computed from the original maturity date of the relevant swap transaction and every one month thereafter. 7. The arrangements has been renewed several times since 2008, and is effective as on Oct-2025. 8. ==A short note on [Currency Swaps](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md#Currency%20Swaps). They are different from [Forex Swaps](Forex%20Swaps.md).=== 9. [Mar 02, 2026](RBI_Press%20Release_20260302_Renewal%20of%20the%20Bilateral%20Swap%20Arrangement%20between%20Japan%20and%20India.pdf) - Renewal of the Bilateral Swap Arrangement between Japan and India was announced. As of then, the size is 75 billion US Dollars. 10. No withdrawals have been made under the agreement by either India or Japan. >Quick Fact - the Bilateral Swap Arrangements (BSAs) entered into by China with EMEs does not involve dollar. ## Yen's Fall in 2026. 1. <span style="background-color:#FFF2D7;">[Yen](Bank%20of%20Japan%20(BoJ).md#July%202026) fell to 40 year low of 163 to a US dollar on July 22, 2026. But why did BoJ not swap US dollars from RBI?</span> 1. BSA is a short-term dollar liquidity source. Japan does not need it. 2. Japan's Finance Ministry said on [August 3, 2026](https://www.mof.go.jp/english/public_relations/statement/others/20260803073000.html) it plans to use the [Fed's FIMA repo facility](https://www.federalreserve.gov/monetarypolicy/fima-repo-facility.htm) for future interventions. This facility this lets approved foreign central banks obtain short-term dollars by temporarily swapping U.S. Treasury securities. This is faster and cheaper than activating a bilateral swap with an emerging market central bank. 3. Also the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank <span style="color:#C21E56;">maintain standing (permanent) (often called the C6 or Central Bank 6) </span> [U.S. dollar liquidity swap line arrangements](https://www.federalreserve.gov/monetarypolicy/central-bank-liquidity-swaps.htm) to enhance the provision of U.S. dollar liquidity. They were originally [created](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md#The%20Federal%20Reserve’s%20Foreign%20Exchange%20Swap%20Lines-Dec%202007%20to%20Feb%202010) as temporary measures during the 2007–2008 Global Financial Crisis and converted into a permanent backstop network in [October 2013](Bilateral,%20Multilateral%20Swaps,%20LoC,%20Liquidity%20Arrangements.md#^6e5364). 4. The India-Japan BSA runs in the opposite direction. The arrangement exists so India can draw dollars (or yen) from Japan to defend the rupee during a BoP squeeze, and it is not intended for the reverse. It is a safety net for India. India's own forex reserves, which is approximately $700 billion, are smaller than [Japan's total reserves](https://www.mof.go.jp/english/policy/international_policy/reference/official_reserve_assets/index.htm) of $1.287 trillion as on end of June-2026, which is the second-largest in the world after China. Japan is also the [largest holder of US treasury securities](https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html). So it would be odd for the country with the larger reserves to borrow from the country with smaller reserves. # Related 1. [[Bilateral, Multilateral Swaps, LoC, Liquidity Arrangements]] 2. [[SAARC Currency Swap Arrangement]] 3. [Sri Lanka's BoP Crisis - 2022](Sri%20Lanka's%20BoP%20Crisis%20-%202022.md) 4. [[Internationalisation of INR OPEN]] 5. [Role of Dollar](Role%20of%20Dollar.md) # References 1. Ajesh Palayi. (2024, May 21). *Currency Swaps of the Reserve Bank of India: Role in the GFSN and Fostering International Financial Cooperation.* RBI's Monthly Bulletin-May 2024. [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=22589) | [pdf](RBI_Article_202405_Currency%20Swaps%20of%20the%20Reserve%20Bank%20of%20India_Ajesh%20Palayi.pdf) 2. RBI. (2008, June 30). Signing of the Bilateral Swap Arrangement between Japan and India. [pdf](RBI_Press%20Release_080630_Signing%20of%20the%20Bilateral%20Swap%20Arrangement%20between%20Japan%20and%20India_RBI.pdf) 3. ==RBI. ([Dec 19, 2022](RBI_Press%20Release_20221219_RBI%20Releases%20Fifth%20Volume%20of%20Reserve%20Bank%20History%20(1997-2008).pdf)). History of The Reserve Bank of India (1997-2008) - Volume V. [pdf](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1997-2008)_Volume%20V.pdf#page=198&selection=27,0,27,54)== [^1]: RBI. ([Dec 19, 2022](RBI_Press%20Release_20221219_RBI%20Releases%20Fifth%20Volume%20of%20Reserve%20Bank%20History%20(1997-2008).pdf)). History of The Reserve Bank of India (1997-2008) - Volume V. [Link](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1997-2008)_Volume%20V.pdf#page=198&selection=27,0,27,54)