The Bangko Sentral ng Pilipinas (BSP) plans to further liberalize the foreign exchange (FX) market to achieve a more transparent financial system and prevent irregular transactions.
“We intend to develop the domestic debt market but [at the same time]we cannot ignore what is happening to our foreign exchange market,” Bangko Sentral Governor Nestor Espenilla Jr. said in a recent speech in Makati City.
Espenilla noted the daily foreign exchange transactions on the Philippine Dealing System reach $600 million on average, but when the central bank started collecting data on the money service businesses, it is in the order of more than $1 billion.
“This is outrageous. For transactions to be happening in unregulated parallel markets, this has got to change,” the BSP official said.
Against this backdrop, the BSP chief said he would champion the liberalization of existing rules on foreign exchange transactions to make the system more risk-based but transparent.
“Notwithstanding the waves of liberalization that the BSP has announced in the past, we recognize that the foreign exchange market today remains restrictive, difficult, opaque and shallow,” he said.
Espenilla noted the situation is a throwback to a time and place when foreign exchange was scarce, reserves were meager, and market confidence was low.
“Today, it’s an entirely different picture. To preserve those kinds of rules in a market that is rapidly growing is to impede the growth of market itself. It simply adds to cost of doing business and just creates a bigger and bigger black market,” he said.
He said his six-year term will focus on liberalizing the foreign exchange market. “We will also continue to reshape the financial system so that it is truly responsive to the needs of the domestic economy,” Espenilla noted.
The central bank has liberalized further adjustments to regulations in aligning foreign exchange rules with the more liberalized banking industry, which now allows full entry of foreign lenders into the Philippines.
The policy changes mainly involved an express provision that the foreign exchange funding for permanently assigned capital of foreign bank branches must be remitted and converted to pesos at the prevailing exchange rate in line with pertinent provisions of the Manual of Regulations for Banks.
The continuing review of forex regulations is consistent with “the BSP’s commitment to maintain a safe and sound financial system, a stable FX market, and an appropriate monetary policy; and other applicable laws,” the central bank said.