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Bangko Sentral further eases rules on foreign exchange

MANILA, Philippines–The Bangko Sentral ng Pilipinas has further liberalized the foreign exchange regulatory environment, making it much easier for people to take dollars and other foreign currencies out of the country.

In relaxing the foreign exchange rules, the BSP hopes to reduce the threat of volatility in the global economy arising from the lingering debt crisis in Europe.

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Under the new rules, importers no longer have to submit documentary requirements to the BSP for imports worth as much as $500,000. This ceiling is much higher than the previous amount of only $50,000.

The new rules also lifted the requirement for banks to submit daily report on outward remittances and portfolio investments.

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The BSP last decided to liberalize foreign exchange rules in November.

The influx of foreign portfolio investments to emerging markets like the Philippines is considered a potential volatility that may turn sour due to the continuing debt problems in the euro zone, market analysts said.

In the first half of 2011, foreign portfolio investments to the Philippines and its neighbors surged as fund owners pulled money from Europe to invest in Asia, which enjoyed a much better economic growth outlook compared with Western economies.

A sharp rise in foreign portfolio investments exerts appreciation pressures on the peso.

Although the BSP allows the market to determine the rise and fall of the peso, the regulator will prevent any sharp and sudden movement of the local currency, which it considers disruptive to the economy.

The BSP believes that, by making it easier for people to take dollars and other foreign currencies out of the country—for instance, importers who need foreign currencies to pay for imported goods—it will offset the appreciation pressures on the peso brought about by influx of foreign portfolio investments.

Nonetheless, market analysts said volatility could arise from the continuing debt woes in Europe. Investors may have decided to pull out funds from emerging markets and opt to hold on to cash to stay safe while the global economy is still fragile, they explained.

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In this case, the pullout of funds from emerging markets like the Philippines may cause depreciation pressures on the peso and other currencies.

But the BSP is confident that by further relaxing forex rules, any pressure on the peso will be minimized.

Monetary officials believe that liberalized rules actually have the ability to attract foreign investments. They said that foreign fund owners are less afraid to bring in funds to countries where foreign-exchange rules are relaxed. Knowing that they can easily take money out once they need to, investors will have no qualms bringing in money to the Philippines, officials said.

The relaxation of foreign exchange rules came following the release of data showing that the Philippines registered a net outflow of foreign portfolio investments in February.

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TAGS: Bangko sentral, banks, Business, currencies, Foreign Exchange
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