BSP shelves FX swap talks with China


The Bangko Sentral ng Pilipinas (BSP) is no longer pursuing the $2-billion bilateral swap arrangements (BSA) with People’s Bank of China (PBOC) which was originally intended to facilitate bilateral trade and investment, as well as short-term liquidity support when needed between the two countries.

“Negotiations was put on hold in 2020,” said BSP Governor Benjamin E. Diokno on Thursday, Jan. 20. Talks were ongoing in the first six months of 2020 before it was mutually terminated sometime after the second half of that year. It was not resumed in 2021 and may not be on the table anymore as the Duterte administration is on its last months of incumbency.

BSP Governor Benjamin E. Diokno

The BSA with PBOC expired in 2010, same time as the BSA with Bank of Korea which was also not renewed due to lack of interests on both sides, said Diokno.

“The BSA (with PBOC) was not renewed, however negotiations for a bilateral currency swap arrangement were initiated in 2018. This arrangement aims to facilitate bilateral trade and investment as well as provide liquidity should a need arise,” he said in a press chat.

The only existing BSA that BSP has maintained is the one with Bank of Japan (BOJ) involving as much as $12 billion which Diokno said offers a “layer of financial safetynet” and another buffer against external shocks. Thus, it sends a positive signal to the market that there are available foreign exchange resources in times of need.

“Just like any other arrangement, there are costs in our participation in the BSA, such as the interest that we need to pay once we draw from the facility and the opportunity cost of the $500 million we committed under the arrangement,” said Diokno. But, he added, that “overall, the benefits of the BSA outweigh its costs.”

Earlier this month, the BSP renewed its BSA with Japan. 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 has 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.

Diokno said that since its establishment in 2001, the BSP “has not drawn from the BSA (because) the Philippines continues to have a strong external position, sound macroeconomic fundamentals, and enough policy buffers to weather external risks and vulnerabilities.”

The BSP is also part of the ASEAN Swap Arrangement or ASA for a $2 billion short foreign exchange liquidity support. The Philippines’ commitment under the ASA is $300 million which allows the country to draw up to $600 million as the need arises.

The Philippines through the BSP is also 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.

During Thursday’s online “GBED Talks” with the media, Diokno said the BSP is working with other central banks for the continued exchange of information, to share best practices in areas of mutual interest, and to guard against potential regional and global financial risks.

“For this year, we have in our pipeline negotiations with other central banks focusing on internal audit, digital payment initiatives, and cross border establishments,” said Diokno.

The BSP formalizes these agreements through Memorandum of Understanding or MOUs, and financial cooperation arrangements.

Last year, the BSP signed cooperation agreements on information exchange and capacity building with the Central Bank of Mauritius and the Monetary Authority of Singapore.

The BSP also has bilateral agreements with Bank Indonesia, Otoritas Jasa Keuangan, Brunei Darussalam Central Bank, and Czech National Bank, among others.

“These cooperation agreements involve information exchange and capacity building in the areas of fintech development, financial market regulations, central bank digital currencies and Islamic banking, just to name a few,” said Diokno.