What is the primary purpose of the SAARC Currency Swap Framework?a) To...
The SAARC Currency Swap Framework is designed to provide short-term liquidity support to member countries facing financial crises or instability. It helps stabilize economies by allowing countries to borrow foreign currency to address immediate balance of payment issues. This framework promotes regional cooperation and financial stability, particularly during times of economic distress.
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What is the primary purpose of the SAARC Currency Swap Framework?a) To...
Understanding the SAARC Currency Swap Framework
The SAARC Currency Swap Framework is a significant initiative aimed at enhancing financial stability among the member countries of the South Asian Association for Regional Cooperation (SAARC). Its primary purpose is to provide short-term liquidity support during financial crises, making option 'B' the correct answer.
Key Objectives of the Framework
- Crisis Management: The framework is designed to offer immediate financial assistance to member countries facing balance of payments problems. This is crucial during economic downturns or unexpected financial shocks.
- Strengthening Regional Cooperation: By providing liquidity support, the framework fosters closer economic ties among SAARC nations, promoting regional stability and cooperation.
- Reducing Vulnerabilities: It helps mitigate the risk of financial crises by offering a safety net, which can prevent countries from resorting to more harmful measures, such as drastic cuts in government spending or increased borrowing from external sources.
Mechanism of Operation
- Swap Agreements: Member countries can enter into currency swap agreements, allowing them to exchange their local currencies for a predetermined amount of another member country's currency.
- Flexible Terms: The framework allows for flexibility in terms of the amount and duration of swaps, addressing the specific needs of countries based on their economic situations.
Conclusion
In summary, the SAARC Currency Swap Framework serves as a vital tool for ensuring financial stability in the region by offering short-term liquidity support during financial crises. This mechanism not only aids individual countries but also strengthens the overall economic resilience of the SAARC region.