The Bangko Sentral ng Pilipinas (BSP) is considering whether or not to increase its holdings of China’s renminbi especially now that the International Monetary Fund (IMF) has recommended its being classified as a global reserve currency.
Central bank Governor Amando Tetangco Jr. on Wednesday said the option was being reviewed given efforts to diversify the foreign currency composition of the country’s reserves and also increase foreign exchange yields.
“We will of course have to understand how the domestic market works in China so that we’d be in a better position to make a decision,” Tetangco told reporters on the sidelines of an Asia Pacific Economic Cooperation (APEC) Leader’s Meeting.
Tetangco said that at present, the central bank’s investments in the renminbi were mainly through the Executives’ Meeting of East Asia Pacific Central Banks’ (EMEAP) Asian Bond fund and the Bank of International Settlements’ (BIS) China fund.
“Now that the PBOC (People’s Bank of China) has liberalized its policies and regulations allowing central banks to invest in the onshore market, we will definitely consider that and make a decision on how we need to move forward at that point,” he said.
Measured in US dollars, the country’s gross international reserves (GIR) as of October amounted to $81.14 billion. Seen as a buffer against external headwinds, the latest GIR level is enough to cover 10.4 months of merchandise imports and payments of services and income.
Tetangco said the renminbi’s inclusion in the IMF’s special drawing rights (SDR) basket as a fifth currency was expected to increase the Chinese currency’s use in global financial transactions.
IMF staff members have issued a paper stating that the renminbi meets requirements to be a “freely usable” currency, proposing that it be included in the organization’s SDR basket alongside the US dollar, euro, British pound and the Japanese yen.
“I think this will lead to some portfolio rebalancing by investors and there may be likely an increase in the demand for renminbi,” Tetangco said.
Going forward, he said the Philippine economy could look at the renminbi as a medium of settlement of trade transactions, noting in particular that there was growing trade between China and the Philippines.
The BSP governor said China accounted for about 12 percent to 14 percent of Philippines exports and about 8 percent to 9 percent of imports.
“The opportunity there is both Chinese and Filipino traders can benefit with the use of just one currency without having to go to the third currencies in settlement of transactions,” he said.