PH renews FX swap deal with Japan


The Philippines through the Bangko Sentral ng Pilipinas (BSP) has renewed its $12billion bilateral swap arrangement (BSA) with Japan for liquidity crisis response.

**media**

The BSP announced Tuesday, Jan. 4, that it has signed the third “amendment and restatement agreement” for the BSA and it is effective from Jan. 1, 2022. The BSP and Bank of Japan (BOJ) as agent for the Minister of Finance of Japan, signed the third BSA.

The BSA is a two-way arrangement where both the BSP and BOJ can swap their local currencies in exchange for the US dollar. The swap deal includes a crisis resolution facility which is a crisis prevention scheme to address potential liquidity needs. Since 2014, the BSP and BOJ have a standing BSA worth $12 billion. The restated BSA enables the Philippines to swap its local currency against Japanese yen or $12 billion equivalent for the Philippines and $500 million for Japan.

According to the BSP, the renewed BSA incorporates amendments to align the BSA with the recent amendments to the $240 billion Chiang Mai Initiative Multilateralization (CMIM) Agreement. The CMIM swap facility is for ASEAN+3 region. As of mid-2021, the CMIM agreement was amended to raise the International Monetary Fund de-linked portion from 30 percent to 40 percent in response to the pandemic.

“Japan and the Philippines believe that the BSA, which aims to strengthen and complement other financial safety nets, will further deepen financial cooperation between the two countries and contribute to regional and global financial stability,” said the BSP.

Last September 2021, BSP Governor Benjamin E. Diokno said that the BSP has been actively seeking a peso-Japanese yen settlement framework to encourage more trade and investments between the two countries.

The Philippine Peso-Japanese Yen Direct Settlement Framework will complement the existing BSA and the Cross Border Liquidity Arrangement (CBLA) with the BOJ.

The BSP since 2019 has initiated the establishment of a peso-yen settlement framework not only for local currency trade links, but also to minimize foreign exchange risks. Japan accounted for 47.4 percent of net equity FDIs in 2020 or about $700 million.

In 2013, the BSP and BOJ implemented its peso-yen swap facility through the CBLA. The CBLA allowed banks operating here including Japanese banks, to access the peso liquidity against their yen holdings “during emergency situations.” Basically, Philippine banks could purchase peso from the BSP by selling and repurchasing Japanese yen with the central bank.