Chinese tourists who travel to the Philippines will soon be able to change their renminbi into pesos at better exchange rates, while Filipino businessmen with dealings in the world’s second-largest economy will soon be able to convert their pesos into yuan without having to rely on the US dollar as an intermediate peg.
This will be made possible after local banks—led by the subsidiary of Bank of China—were given the green light by the central bank to develop a formal peso-renminbi spot market that will make foreign exchange transactions between both countries more efficient and cheaper.
In an interview with the Inquirer, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the move was being made in response to the growing economic relationship between China and the Philippines, whether in tourism, foreign direct investments or Filipino industries sourcing their raw materials from Chinese suppliers and needing to pay for them.
“Even Philippine banks have clients who now need yuan,” he said. “So this is part of the reform measures of the BSP. We want to see the development of a formal foreign exchange market.”
The proposal to create a peso-renminbi spot market is not a new one and was put before regulators and banking stakeholders in recent years, but the idea was dismissed after it was determined that there was insufficient volume in the peso-renminbi field to justify the creation of a formal system. As such, most transactions between Chinese and Filipino parties must first be priced using the current US dollar rate for both currencies or a so-called “cross,” a process that entails additional marginal cost.
“But the world is changing,” the BSP chief said. “We now have the dollar market. But we can also have the renminbi market, or a yen market, or other markets with our trading partners.”
Espenilla explained that, in the case of the current peso-dollar foreign exchange market, its operations are run by a committee of the Bankers Association of the Philippines. Going forward, the BSP chief said he wanted the foreign exchange market—not just for the dollar but for any currency—to be run by a multilateral organization directly supervised by and is answerable to bank regulators.
He stressed that the move to create a formal peso-renminbi spot market was not the result of a central bank mandate, but that of regulators responding favorably to a proposal put forth by Bank of China.