BSP pursues currency swap with China

The Bangko Sentral ng Pilipinas (BSP) has resumed talks with China for the renewal and the increase of the $2 billion bilateral currency swap agreement (BCSA) as standby liquidity support in case of foreign currency emergencies.

The BCSA, which expired in 2010, has been drafted for final negotiations.

“The BSP has ongoing negotiations for a BCSA with the People’s Bank of China (PBC), which as currently drafted, aims to facilitate bilateral trade and investment and provide support for the maintenance of the balance of payments (BOP) and short-term liquidity,” the BSP said in a report.

The BSP, so far, has been in an on and off swap deal negotiations with China’s central bank for three years. It received a more favorable reception after President Rodrigo Duterte’s numerous official trips to China since 2017. The previous swap arrangement with China lapsed in 2010. It was the BSP’s third swap deal with PBC.

Currency swap arrangements not only enhance bilateral cooperation between two countries by encouraging the flow of trade and investments, it also guarantees availability of currencies to settle trade.

While in talks with PBC, the BSP has also reaffirmed its intention to participate in other regional financing arrangements such as the recently amended $240 billion Chiang Mai Initiative Multilateralization where the Philippines can borrow up to $22.76 billion from the facility.

For now, the BSP’s only bilateral swap arrangement is with Bank of Japan. The latest was the agreement to create a yen account as part of the currency swap deal. The deal enables the Philippines to swap its local currency against Japanese yen of up to $12 billion.

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.

Besides regional arrangements, the BSP has also renewed commitments with global organizations such as the International Monetary Fund (IMF).

The BSP said that it has “maintained and renewed financial arrangements as part of its policy toolkit against risks to tightening of global financial conditions.” For the IMF, it has renewed its Bilateral Borrowing Agreement where the BSP “committed to provide the IMF with up to $1 billion in resources” to finance arrangements for countries with balance of payments difficulties until end-December this year.

The BSP has likewise renewed two other facilities with the IMF, the $500 million New Arrangements to Borrow (NAB) and the $400 million Financial Transactions Plan (FTP). The former is a credit arrangement where the BSP provides resources to the IMF, and with drawdowns, the BSP said it “receives interest income from its participation in the NAB based on the SDR (special drawing right) interest rate.” The latter is a currency exchange arrangement between the IMF and selected IMF members.

The country’s BOP is still in surplus of $4.03 billion in the first five months of 2020. For this year, the BSP is projecting a BOP surplus of $600 million, lower than its previous forecast of $2.9 billion.