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Central banks of BRICS countries (Brazil, Russia, India, China and South Africa) are actively engaged in discussions for an agreement to operationalise a BRICS ‘contingent reserve arrangement’ among them.
The arrangement is aimed at forestalling short-term balance of payments pressures, provide mutual support and strengthen financial stability of the BRICS nations.
It is expected that the inter-central bank agreement will be signed this year, according to a top official of the RBI. This information formed part of a communication from PSS Vidyasagar, Assistant Adviser, Fund-Bank Division, International Department, RBI, to S Dheenadhayalan, an RTI activist. The RBI official was responding to a query raised by him in a letter addressed to the Prime Minister and concerning the banking system in the country.
Dheenadhayalan had doubted the capacity of the RBI to effectively engage with counterparts to sign currency-swap arrangements, minimise dependency on dollar settlements, and control rupee volatility.
On July 15, 2014, the BRICS governments had signed a treaty on the setting up of the contingent reserve arrangement with a corpus of $100 billion, the RBI official said.
He also recalled that the Prime Minister has announced that India will provide liquidity support to the tune of $1.5 billion to Sri Lanka. The RBI and the Central Bank of Sri Lanka are in the process of signing the swap agreement.
The official reiterated that the RBI does have sufficient authority to engage with counterparty central banks for entering into currency-swap agreements.
It has, in fact, sewed up some agreements with different central banks in the recent past. In his communication, the RBI official has given details on these swap agreements.
On December 18, 2013, the RBI signed a bilateral swap with the Bank of Japan for an amount of $50 billion. The RBI announced the launch of the SAARC swap arrangement in May 2012. Under this agreement, it will provide liquidity support to needy central banks in the SAARC region. Accordingly, the RBI signed a swap agreement with the Royal Monetary Authority of Bhutan on March 8, 2013.
Dollar settlementTo a query on dollar settlement of international trade, the official recalled that traders in India are free to settle trade transactions in any of the freely convertible currencies (US dollar, euro, Japanese yen, Swiss franc or the British pound).
On the issue of rupee volatility, he clarified that the exchange rate regime in India continues to be ‘managed float’ with the RBI intervening in the forex market to dampen excessive volatility.
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