India looking at currency swap option to help exporters as Sri Lanka plunges into forex crisis

By Mahua VenkateshNew Delhi, Dec 23: With the deepening of Sri Lankas foreign exchange crisis, India could look at coming out with a currency swap mechanism to keep bilateral trade and investments going.

According to sources, the Reserve Bank of India (RBI) has already held discussions on such an arrangement.

The arrangement would come as a "big relief" to Indian exporters.The mechanism could entail a swap of a particular amount of money pegged with the US dollar.

For example, if the swap mechanism is decided for a sum of $100 million, then the RBI will provide Indian rupees to Colombo that is equivalent to the said amount while it will receive Sri Lankan currency in lieu of it.The arrangement will allow Indian exporters to continue supplying goods to the island nation as they would get paid in rupee.Indian importers sourcing goods from Colombo, on the other hand, will make the payment in Sri Lankan currency.

Now, considering at the end of a specified period of the arrangement, India has Sri Lankan currency left with it, the Indian investors can use that for investing in the island nation."This will help both countries continue with the required trade and investments even as Sri Lankas forex reserves are depleting," a person familiar with the development told India Narrative.

India is Sri Lankas second largest trading partner after China.Sri Lankas foreign exchange reserves further dropped to $1,587 million in November 2021 – the lowest since May 2009.In October, Sri Lankas forex reserves stood at $2,269.2 million recorded in October.The countrys forex reserves are just enough to cater to a months imports.

The crisis has also prompted Colombo to offer incentives to Sri Lankans living overseas to expand their remittances.The countrys central bank said on December 1 that it "has decided to pay an incentive of Rs.8.00 per US dollar for workers remittances, in addition to the existing incentive of Rs.2.00" under the "Incentive Scheme on Inward Workers Remittances."Earlier, Sri Lankan President Gotabaya Rajapaksa declared a state of emergency after sharp fall in its currency and surge in food prices, triggered by a near erosion of foreign exchange reserves.(The content is being carried under an arrangement with indianarrative.com)--indianarrative

India looks at currency swap options to aid exporters in Sri Lankas forex crisi

Colombo has offered incentives to Sri Lankans who live overseas, to increase their remittances.On December 1, the central bank of Sri Lanka announced that they had "decided to pay an incentive of Rs.8.00 USD for workers remittances.This is in addition to Rs.2.00 under the "Incentive scheme on Inward Workers’ Remittances." After a sharp decline in the currency of Sri Lanka and a surge in food prices triggered by an almost complete erosion of its foreign exchange reserves, President Gotabaya Rajapaksa of Sri Lanka declared a State of Emergency.(This content is carried in accordance with Indianarrative.com #India #currency #swap #exporters #Lanka #plunges #Delhi #Sri #Delhi #New Delhi #Sharp.