What is a currency swap agreement?

• A currency swap is an agreement between two cross-border entities where one of them agrees to provide a loan to another in a foreign currency. 
• The repayment takes place in a different currency at a fixed date and an exchange rate. 
• The interest rate charged on such loans is usually lesser than that available in the foreign market.

Why in News?

• • The Reserve Bank of India (RBI) has entered into a currency swap agreement with the Maldives Monetary Authority (MMA) under the SAARC (South Asian Association for Regional Cooperation) Currency Swap Framework 2024-27.

• The SAARC Currency Swap Framework came into operation in 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.

• Under the agreement, the MMA is eligible for financing support from the RBI amounting to $400 million under the US Dollar/ Euro Swap Window and ₹3000 crore under the INR (Indian Rupee) Swap Window. The agreement would be valid till 2027.
• This comes at a time when the Maldives is suffering a debt crisis, and previous Chinese loans are due.