Reserve Bank of India (RBI) and Bank of Japan (BOJ) has signed a bilateral swap arrangement (BSA) on Monday. The BSA was signed by BOJ governor Masaaki Shirakawa and RBI governor Yaga Venugopal Reddy in Basel, Switzerland. It will pave a way for swapping local currencies against the US dollar for up to $3 billion. The agreement will also sort out problem of short-term liquidity and strengthen existing international financial arrangements

The agreement was come into effect on Sunday (June 29). Both Japan and India can now swap Yen and rupee against the US dollar up to $3 billion. They will hold biannual consultations on economic and financial conditions of each country with the BSA in effect.

Bilateral swap arrangement (BSA) will activate when international monetary fund support program already exists. Now up to 20 percent of the maximum amount of drawing could be disbursed without an IMF-support program. Indian foreign reserves are flooding with foreign currency. Thus current agreement of bilateral swap agreement will solve the problem of liquidity besides helping in strengthen bilateral ties between two countries. The arrangement has been described as "a milestone in mutual cooperation between Japan and India". Their co-operation will bring stability in financial market.