PH abandons future currency swap deal with China
The Philippines has shelved future talks on renewing its currency swap deal with China even before the Chinese yuan was purposely weakened in past weeks.
The Bangko Sentral ng Pilipinas (BSP) was still negotiating the renewal of the bilateral swap arrangement (BSA) with China as of the third quarter of 2014 but talks bogged down towards the latter part of the year.
BSP Governor Amando M. Tetangco Jr. has confirmed this, when asked of the status of the BSA talks with China.
“Currently, there are no active discussions with our counterparts in China for a bilateral currency swap arrangement,” Tetangco said.
At the end of 2014, China has signed BSAs worth 3 trillion yuan ($471.68 billion) with 28 countries. The list of countries not only excludes the Philippines, but also Japan and the US.
BSAs consider both participating nations’ financial and economic conditions including political and whether the countries involved have a benign or turbulent political reactions against each other.
The Philippines-China row over territorial claims in the South China Sea may have contributed to the collapse of BSA talks in 2014, according to BSP sources.
The BSA with China worth $2 billion expired on April 2010 and has never been renewed since then. It was the BSP’s third BSA with the People’s Bank of China.
Tetangco commented earlier that there was no immediate requirement for BSAs and that they could let proposals remain on the table for an indefinite period. This is because the Philippines as part of the Chiang Mai Initiative Multilateralization (CMIM) has access to a larger standby liquidity support.
Tetangco said BSAs only enhance the CMIM. The Philippines and China are part of the $240-billion CMMI facility to which the former has a committed contribution of $9.1 billion.
Currency swaps are standby liquidity support – or agreements between countries to mutually provide loans in foreign currencies for emergencies such as foreign currency fund shortage. It is part of the Chiang Mai Initiative of 2000, as a way of protecting regional dollar reserves after the 1997 Asian financial crisis.
The most recent Philippine BSA deal was with Japan amounting to $12 billion. The central bank of Japan renewed the BSA last October 2014 and raised the currency swaps from $6 billion to $12 billion. The BSA will expire in 2018.
The BSP is currently still holding talks with South Korea for the renewal of its own BSA worth $2 billion, which expired five years ago.
The CMIM, which is basically a multilateral currency swap contract which covers all ASEAN+3 members, enhances the network of BSAs among ASEAN+3 member countries.
It effectively allows access of the ASEAN+3 member countries and Hong Kong to an expanded CMIM package, and not only from the higher reserves but also access to a crisis prevention facility.