BSP moves to starve black market of dollars

In a major counterintuitive move, bank regulators are set to relax—not tighten—rules in the foreign exchange industry in an attempt to draw more of the trading volume away from the loosely monitored dollar black market, which the $81-million Bangladeshi bank heist exposed to be vulnerable to money laundering.

Set to be implemented “in the next few weeks,” this Bangko Sentral ng Pilipinas initiative aims to make trading dollars with local banks as easy for clients as trading with money changers by eliminating time-consuming documentary requirements and raising transaction limits by, according to a proposal, as much as 1,500 percent.

“We are reviewing foreign exchange regulations with the view of further liberalizing existing rules to allow financial institutions to better respond to the needs of their customers and foster greater market efficiency in support of sustained development,” BSP Governor Amando Tetangco Jr. told the Inquirer.

The formal banking system in the Philippines handles between $300 million and $1 billion on any given day and, although no accurate figure is available, bankers and regulators estimate this represents only between 50 percent and 70 percent of actual foreign exchange deals executed in the local financial system. The rest are transacted through no-questions-asked money changers whose access to dollar liquidity is sometimes bigger than those of the largest banks.

By relaxing requirements on trading with banks, the BSP hopes to move more of the trading volume to the formal market where the transactions are easier to monitor, and action can be taken more speedily against potential financial crimes, like money laundering.

“Part of the reform objectives is to be able to better monitor foreign exchange transactions in the economy through improved reporting,” Tetangco said.

In its most conservative form, the central bank is studying a proposal to raise the cap for retail foreign exchange transactions that can be made through banks without supporting documents from $120,000 to $500,000, or an increase of more than 300 percent.

The same central bank proposal would also raise the amount sharply for corporate entities, allowing them to trade as much as $1 million through banks without the need for supporting documents.

A more aggressive proposal being put forward by banking industry stakeholders is to raise the cap for dollar trades that do not require documentary support from $120,000 to at least $2 million, representing a 15-fold hike from the current level permitted.

The liberalization of the foreign exchange policy includes the relaxation of rules on the crediting of dollar transactions to banks’ foreign currency deposit units, which was previously a lengthy and document-intensive process that forced many clients to black market foreign exchange traders.

The new rules will also ease loan registration requirements, allowing companies to source dollars from the formal sector to pay for foreign liabilities that were not previously registered with the banking system. At present, corporate dollar requirements to pay for foreign obligations can only come from banks if the dollars were originally brought into the financial system through official channels.