The Bangko Sentral ng Pilipinas sees no danger in allowing the country to further build up its foreign exchange reserves, now at a record $84 billion.
For the BSP, the accumulation of gross international reserves (GIR) is simply a consequence of its effort to stabilize the country’s financial system. Should destabilizing factors become significant, the monetary authority said it would engage in heavier dollar-buying right away.
“We [the BSP] need to maintain stability in the system, and so we need to absorb some [foreign exchange] inflows. We think we have enough reserves, but the maintenance of monetary stability is an important objective for us, and so we will continue to pursue that objective,” BSP Governor Amando Tetangco Jr. told members of the Rotary Club of Manila on Thursday.
The central bank earlier reported that the country’s GIR already reached $84.1 billion in November, the highest on record. The amount would be enough to cover the country’s import requirements for over a year. It is also nearly seven times the combined short-term debt, denominated in foreign currencies, of private and government entities in the Philippines.
Based on old standards, GIR worth about four months of a country’s import requirements was considered comfortable. A significantly higher amount could be costly.
But Tetangco said that the old standards were relevant before the Asian financial crisis. Since then, he said, economies in Southeast Asia have decided it would be more prudent to accumulate substantial amounts of foreign currencies to serve as buffer in the event of a crisis.
Tetangco explained that determining the ideal amount of reserves would depend on the crisis that happens to threaten an economy.
Last year, the BSP engaged in heavy dollar buying to help temper the appreciation of the peso. Monetary officials admitted that, if not for the central bank’s intervention, the local currency would have appreciated by a much faster pace.
The peso closed at 41.05 against the US dollar on the last trading day of 2012. It rose by 6.8 percent against the greenback in 2012, becoming the second-fastest appreciating currency in Asia, and the fourth-fastest among all actively traded currencies in the world.