By LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swaps was more active in 2019 with $553 million compared to zero transactions at the end of 2018 with some banks still using the swaps for peso liquidity.
FX swaps – also known as the unfiltered US dollar source of the BSP — is one of the options that banks can tap whenever they need peso liquidity.
The FX swaps in December was lower from November’s $917 million. Last year, banks’ forwards and futures were active in February, October and November, while only some activity was recorded in March and September. In 2018, only November had foreign currency positions.
Basically, banks utilize the swaps such as forward, futures, options and currency to avail of liquidity. The BSP, in the meantime, utilize the derivative market to intervene, specifically in FX swaps and repurchase agreements or repo.
By central bank definition, FX swaps is the exchange of two currencies, agreed at the prevailing spot rate, and a “simultaneous commitment to reverse the exchange of the same two currencies at a date further in the future at a rate agreed on deal date.”
Movements in the FX swaps and derivatives market ultimately will impact on the levels of both peso and dollar liquidity and influences the exchange rate. However since the volume of swaps has been reduced the BSP is employing other measures to release FX liquidity in the system.
The last major FX rules liberalization implemented by the BSP was in 2019.
BSP Circular No. 1030 includes provisions in the registration of FX transactions, current account transactions, financial account transactions, inward and outward investments. It also amended the provisions in banks’ FX forwards, swaps and open FX position.