A currency swap agreement is an agreement between two countries to exchange their currencies, typically to avoid fluctuations in the exchange rate. This agreement is typically used to stabilize the economies of the two countries involved, and to promote trade between them.
In the South Asian Association for Regional Cooperation (SAARC), a currency swap agreement has been established among its member countries, which include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. This agreement was established in 2012, with the aim of promoting economic cooperation and integration within the region.
The SAARC currency swap agreement is administered by the SAARC Secretariat, and allows member countries to swap their currencies up to a predetermined limit. This limit is based on the country`s contribution to the reserve pool, and is designed to provide a safety net for countries facing balance of payment difficulties.
The SAARC currency swap agreement has been seen as a positive step towards economic integration within the region, and has been praised by international organizations such as the International Monetary Fund (IMF). It has also been seen as a way to counter the dominance of the US dollar in international trade, and to reduce the reliance of member countries on external sources of financing.
For UPSC aspirants, it is important to understand the significance of the SAARC currency swap agreement in the context of regional economic cooperation and integration. Questions related to this topic may appear in the exam, and candidates should be well prepared to answer them.
Overall, the SAARC currency swap agreement is an important initiative that has the potential to promote economic growth and stability in the South Asian region. It is a step towards greater economic integration and cooperation, and should be seen as a positive development for the region as a whole.