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Manila Bulletin devider Business devider Banking & Finance devider Philippines, Japan renew FX swap arrangement

Philippines, Japan renew FX swap arrangement

Published Jan 6, 2025 07:07 am

The Philippines and Japan have renewed their bilateral swap arrangement (BSA) for the fourth time, worth up to $12 billion, to ensure financial safety nets and stability in both countries, the Bangko Sentral ng Pilipinas (BSP) announced on Monday, Jan. 6.

Effective Jan. 1, 2025, the BSA is a standby foreign exchange (FX) swap deal that will be in place for another three years, marking the fourth amendment and restatement of the agreement.

The Philippines' active engagement in the BSA signals its readiness to support other countries in need of assistance.

“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.

The BSA is a two-way arrangement where both the BSP and the Bank of Japan (BOJ), acting as an agent for the Minister of Finance of Japan, can swap their local currencies for US dollars.

Since 2022, the swap deal has included a crisis resolution facility, a crisis prevention scheme designed to address potential liquidity needs.

The BSP has been actively pursuing a peso-Japanese yen settlement framework to encourage increased trade and investment between the two countries.

This framework, known as 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 initiated the establishment of this framework not only to facilitate local currency trade links but also to minimize foreign exchange risks.

In 2013, the BSP and BOJ implemented a peso-yen swap facility through the CBLA. This arrangement allowed banks operating in the Philippines, including Japanese banks, to access peso liquidity by exchanging their yen holdings during emergencies.

Essentially, Philippine banks could purchase pesos from the BSP by selling and repurchasing Japanese yen with the central bank.

Furthermore, the BSA incorporates changes to align it with amendments to the $240 billion Chiang Mai Initiative Multilateralization (CMIM) Agreement, a swap facility for the ASEAN+3 region.

The CMIM agreement was amended in response to the Covid-19 pandemic to raise the International Monetary Fund de-linked portion from 30 percent to 40 percent.

The BSP emphasized its active contribution to the CMIM, providing support to safeguard the international monetary system and regional financial stability.

The CMIM has undergone several changes, including updates to its operational guidelines and the swap manual.

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