Bilateral Local Currency Swap Agreements between Central Banks

Currency Swaps play an important role in smoothing currency volatility and therefore lowering uncertainity and thus reducing the cost of doing international business. The central banks enter into Swap agreements which in turn permit their commercial banks to have recourse to liquidity even in times of financial distress. Considering the Emerging Markets tension of late, the move by the Reserve Bank of Australia to enter a bilateral local currency swap agreement with the Bank of Korea is positive sign for trade between the two countries ties. The Swiss National Bank had concluded similiar agreements when the Swiss France was most sought after as a safen haven asset.

PDF: FX-Swaps-Central-Banks


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