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India pitches the need for currency swap lines among G20 nations

19 Sep 2014 Evaluate

In a vigilant exercise to safe-guard the country from external shocks, India pitched the need to actively explore currency swap agreements to all the fellow emerging economies at the meeting of G-20 deputies in Cairns, Australia, on Thursday, in a joint solution to mitigate risks which the emerging economies face as the US gradually winds down its stimulus programme.

Finance secretary Arvind Mayaram at the gathering of finance ministers and central bankers, pressed upon the need for IMF to analyze upon the costs and the benefits that these swaps would bring if they were put in place and evaluate the loss on GDP in the face of exogenous shocks, in scanerio of both absence and presence of these swaps.

Further, Mayaram highlighted that if swap facilities would be utilized, the benefits would include a reduction in the negative shock to EMs and global GDP. Adding that the benefits to the global financial system could potentially be large as it would reduce the amount of self-insurance that countries would otherwise require.

Noting that the QE policy has had an impact on the currency markets of many of the emerging market economies Finance Secretary Arvind Mayaram has suggested currency swap lines among G20 nations. Further, testifying these views, the finance secretary underscored that the decisions on the exit from the QE programme that came in after the US Federal Reserve's meeting yesterday also had an impact on the currency markets of many of the emerging market economies. After the meeting, the US Federal Reserve decided to continue with near-zero interest rate regime and has cut down on asset purchases. However, it did not provide a specific time frame on when the interest rates could be hiked.

Lastly, stressing upon the need of uncertainty and volatility in external environment, Mayaram asserted that it was imperative the emerging market economies, including India, continued the path of structural reforms and the solution to this problem required their attention. He added that strength of G20 lied in taking international collaborative actions and not limiting to the individual country growth strategies.

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