BSP bets on yuan to secure PH currency reserve

Local monetary authorities are considering hiking investments denominated in China’s yuan, which gained international acceptance recently following major financial reforms unveiled by Beijing.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said moves to make the yuan more flexible opens an opportunity for economies to spread out risk profiles.

“It’s clearly an option for the BSP in its efforts to diversify its reserves and enhance yields,” Tetangco said this week.

Speaking on the sidelines of the Asia-Pacific Economic Cooperation (Apec) meetings in Manila, Tetangco said the Chinese currency could no longer be ignored.

Managing the country’s stock of foreign-denominated reserves are a major part of the BSP’s responsibility in keeping the domestic economy stable.

The country’s gross international reserves (GIR), comprised of a variety of assets from gold to different financial instruments, serve as the economy’s foreign currency buffer stock that can be tapped in times of crisis.

This ensures that local businesses and the government have a steady supply of foreign currency needed to pay for imports or foreign obligations. Bulk of the country’s current reserves are denominated in US dollar.

“Now that the People’s Bank of China (PBOC) has liberalized its policies and regulations … we will definitely consider [investing in yuan],” Tetangco said.

Last August, China’s central bank loosened its grip on the yuan, addressing long-held complaints by the international community over Beijing’s peg on its currency.  In October, the International Monetary Fund (IMF) approved the yuan’s inclusion in the Fund’s Special Drawing Rights (SDR), an artificial currency made up of other major units like the US dollar, Japanese yen and euro.

The yuan’s rise in international prominence also comes in response to the global financial crisis, which saw many economies weighed down due to their reliance on the dollar for international transactions.

Tetangco said country’s reserves are only indirectly exposed to the yuan, mainly through investments in multilateral funds that have yuan-denominated assets.

At the end of October, the country’s foreign exchange reserves rose to $81.14 billion from $80.55 billion the month before. The country’s GIR was at its highest level since December 2013’s $83.18 billion.