BSP, Bank of Japan sign new currency agreement
THE CENTRAL banks of the Philippines and Japan have signed a new deal for easier peso to yen—and vice versa—transactions, further strengthening both nations’ economic ties.
This comes amid geopolitical tensions triggered by China’s territorial claims in the region that has led to an increase in trade and investments between Japan and the Philippines.
Under the new agreement, the Bank of Japan (BOJ) and the Bangko Sentral ng Pilipinas (BSP) will establish a new cross-border liquidity arrangement to enhance financial stability.
Once completed, the liquidity arrangement will allow banks—both local and Japanese—operating in the Philippines to buy yen directly from the BSP. This makes it easier for bank clients holding Japanese yen to make transactions in the Philippines.
According to the BSP, the agreement “widens the range of facilities available to those eligible banks, including Japanese banks.”
“This collaboration reinforces BOJ and BSP’s commitment to support the long-standing economic and financial relationships between Japan and the Philippines,” said a statement issued yesterday by the local central bank. Other details of the deal were not disclosed.
Late last year, both central banks also announced the expansion of a bilateral currency swap agreement under which both nations committed to provide foreign currencies to each other in times of need.
Under currency-swap deals, participating countries agree to sell foreign currencies to each other. This is needed to avert or address a so-called balance-of-payments (BOP) crisis, which is the depletion of an economy’s supply of foreign exchange liquidity that a country needs to do business with the rest of the world.
The new deal with Japan doubles the size of a previous currency swap agreement to $12 billion, in favor of the Philippines. Japan can swap up to US$500 million with the Philippines.
Aside from the crisis resolution facility, this arrangement also introduces a new feature in the form of a crisis prevention scheme to address potential liquidity needs.
In the last two years, economic ties between both countries have been galvanized as both face a common enemy in territorial disputes—China.
Latest data showed pledges made by Japanese firms to the country’s investment promotion agencies in the first quarter of 2014 rose by 59.3 percent.
