BSP may cut US treasury holdings

The Bangko Sentral ng Pilipinas will diversify the investment outlets for the country’s foreign exchange reserves as the heavy exposure to US treasuries is no longer prudent given the declining value of the dollar.

Of the Philippines’ gross international reserves of $76 billion as of end-June, about 85 percent are invested in securities, mostly US treasuries. The concentration of investments in the dollar-denominated and virtually risk-fee government securities was meant to avoid significant risk of losses.

However, BSP Governor Amando Tetangco said the depreciation of the dollar against other currencies has prompted the BSP to consider investing portions of the GIR elsewhere.

Tetangco said the BSP was looking into potential securities denominated in other foreign currencies.

“We will also continue to review opportunities to diversify our reserves investments to help shield a portion of our portfolio from challenges in the foreign-exchange translation of the GIR,” Tetangco told the Inquirer.

The intention of the BSP to diversify the investment outlets of the GIR comes amid a general view that the dollar may continue losing value because of the failure of the American economy to post a solid recovery from its recession in 2009.

The banking sector in the United States remains problematic and its government is saddled with a heavy debt burden. Also, domestic demand in the world’s biggest economy remains soft.

Diversification of the Philippines’ GIR will also come at a time when talks abound in the international community about having alternative currencies in the foreign-exchange reserves of countries.

The dollar is depreciating even against the peso. In the first seven months of the year, the peso strengthened by 5.1 percent against the greenback.

Tetangco said that if the Philippines’ foreign exchange reserves were invested in securities denominated other than the dollar, then these could further grow in value.