The central bank and some of the country’s biggest financial institutions—led by the local unit of Bank of China—will attempt to displace the US dollar with the renminbi (RMB) as the currency of choice for trade between China and the Philippines with a deal that will establish a peso-yuan spot trading market.
The memorandum of understanding that will ratify the so-called Philippine RMB Trading Community will be signed today between the Bangko Sentral ng Pilipinas (BSP) and Bank of China Manila in Makati City.
In a statement, the parties behind the deal said the agreement “aims to promote a fair, transparent and resilient domestic renminbi market.”
In theory, the spot market—which will offer a price quote between the peso and yuan that will allow direct conversion between both currencies, instead of having to be converted into dollars as an intermediate step—will make transactions between both countries faster, more efficient and cheaper.
According to the group, this spot market “will enable efficient, cost-effective renminbi settling for local firms that wish to enter China’s fast-growing market, as well as strengthen business relationships with counterparts in the mainland.”
The Philippine RMB Trading Community includes Bank of China Manila and its partner banks: Asia United Bank, BDO Unibank, Bank of the Philippine Islands, China Banking Corp., East West Bank, Metropolitan Bank & Trust Co., Philippine Bank of Communications, Philippine National Bank, Philippine Business Bank, Rizal Commercial Banking Corp., Sterling Bank of Asia, Security Bank, Union Bank of the Philippines and Bank of Commerce.
Among the key beneficiaries of this scheme would be Chinese tourists whose arrivals grew by 52.65 percent in the first four months of 2018, according to the Department of Tourism. The group said direct convertibility of the yuan into pesos could further encourage their patronage and drive higher sales across the country.
“The majority of transactions with foreign customers are done using US dollars,” the group said in an earlier statement. “The renminbi will be new territory for most Filipinos who are used to the dollar.”
China is also one of the country’s major trading partners.
Based on May 2018 data from the Philippine Statistics Authority, China ranked fourth among the country’s top export destinations with a share of 13.2 percent, amounting to $761.40 million. China is also the biggest source of Philippine imports with a 20.3-percent share representing $1.92 billion in total payments.