New Delhi (PTI): The government on Thursday approved a proposed currency swap agreement with Japan to exchange USD 3 billion to safeguard the economy from any future balance of payment of crisis.

The government will authorise the Reserve Bank to sign a currency swap agreement with Bank of Japan to exchange USD 3 billion against rupee or Yen for mitigating short term balance of payment problem.

"It is an additional arrangement outside IMF (international monetary fund) to meet for short term liquidity in USD during a balance of payment crisis," an official spokesperson told reporters after the Cabinet meeting.

In August 2007, during the visit of then Japanese Prime Minister Shinzo Abe to New Delhi, India and Japan had agreed to sign a bilateral agreement on currency swap, which will add to a regional network of such accords designed to provide emergency financial liquidity to either or both parties in times of currency market or other turbulence.

Sources said with around 300 billion dollar forex reserves, there is distinct possibility that provisions of proposed agreement would be ever operationalised in near future, but it will provide a cushion to the government to face any financial crisis like the one happened in Eastern Countries in late 90s.

As per the proposed agreement, India and Japan will help each other if their currencies were to come under the attack of speculators.

Japan has swap deals with other Asian countries like Thailand, Korea, China, Malaysia, Philippines, Singapore and Indonesia. In some cases, the swap is one way, while in some others it is two-way.