Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said there is no need for the country to tap any of the existing currency swap arrangements both on the regional and bilateral level, on the back of a still adequate US dollar reserves.
“We don’t see any need for them, at the moment,” said Diokno on Tuesday, Oct. 26. “Our first line of defense is our hefty GIR (gross international reserves),” he said.
Diokno pointed to the country’s “constant” foreign exchange inflows from overseas Filipinos’ remittances, receipts from the business process outsourcing sector, the growing exports, and rising foreign direct investments for the hefty reserves.
“At the same time, FCDU accounts remain robust,” he added.
Banks’ foreign currency deposit units are another source of buffer fund, on top of the GIR. The GIR as of end-September total $106.6 billion while FCDU assets amount to $54.7 billion as of end-June. FCDU assets are considered US dollar reserves.
Diokno said buffers against external shocks remain strong because of “various liquidity support arrangements” and these liquidity resources “help safeguard against financial market strain and liquidity squeeze.”
The Philippines through the BSP is part of regional financing arrangements such as the $240 billion Chiang Mai Initiative Multilateralization (CMIM) where the Philippines can borrow up to $22.76 billion from the facility.
The country also has standby liquidity support from the ASEAN Swap Arrangement (ASA) which is a $2 billion foreign exchange liquidity assistance. The country can tap up to $600 million from ASA. The BSP’s ASA commitment is $300 million.
Another standby liquidity buffer is the bilateral swap arrangement (BSA) with Japan.
“We view the CMIM and BSAs as second line of defense,” said Diokno.
Since 2014, on a country-by-country basis, the BSP and Bank of Japan has a working BSA. The swap deal includes a crisis resolution facility which is a crisis prevention scheme to address potential liquidity needs.
The BSA is expected to be renewed when it expires by the end of 2021 to provide short-term liquidity support to the Philippines and Japan. It enables the Philippines to swap its local currency against Japanese yen, or $12 billion equivalent for the Philippines and $500 million for Japan.