The Central Bank of Sri Lanka (CBSL) settled a $400 million currency swap facility from the Reserve Bank (RBI) of India.The CBSL obtained the swap facility on July 31, 2020, for an initial period of three months, to cope with the severe economic impact of the pandemic. Subsequently, the RBI provided a three-month rollover at CBSL’s request, until February 1, 2021. Further extension would require Sri Lanka having a successfully negotiated staff level agreement for an IMF (International Monetary Fund) programme, which Sri Lanka does not have at present.
SAARC currency swap framework
The SAARC currency swap framework came into operation on November 15, 2012, to provide a backstop line of funding for short term foreign exchange liquidity requirements or short-term balance of payments stress till longer term arrangements are made. The facility is available to all SAARC member countries, subject to their signing the bilateral swap agreements. Besides India, the other South Asian Association for Regional Cooperation (SAARC) member countries are — Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka.
About Currency Swaps
A currency swap is a transaction in which two parties exchange an equivalent amount of money with each other but in different currencies.