Monday, 27 August 2007

Indo Japan Currency Swap...

India and Japan have entered into currency swap agreement. This agreement specifies that in the event of either country facing currency/forex crisis can swap local currency for dollars with the other country. That means, if any BOP or forex crisis arises for India, then Japan will buy Indian Rupee and sell Dollars to India and vice-a-versa.

Japan has entered into similar arrangements with other asian countries also. In the current scenario, the deal does not have any importance as almost all the asian countries are holding huge forex. But the significance of deal will realised in the event, crisis like that of Asian Financial crisis in 1997 and recent Indonesian forex woes.

Currently Chinese Remnibi is gaining ground and along with that inflation is also galloping in china, this could lead to adverse effect on chinese trade surplus (nevertheless china is experience huge upsurge in its trade surplus---thanks to artifical limit on chinese yuan)
Inflation in china may lead to increase in demand for imported goods vis-a-vis home manufactured goods.

anyways, if that happens, that would mean good days for Indian products as the cost advantage of chinese products may get eroded. The current inflation ion china is around 7%.

No comments: