Hey buddy, internationalize this

Ben D. Kritz

Ben D. Kritz

President B.S. Aquino 3rd is one imaginative chap, no matter what else can be said about him.

Speaking to a group of Filipino expats in Paris on Wednesday (Thursday in Manila), Aquino dispensed with his usual “the Philippines is open for business” and “You just can’t imagine what a mess Gloria left for me to clean up” schtick and floated an entirely new canard: An “international banker,” he said, made the “shocking” suggestion that, since the country’s economy was on the rise, the Philippines should “globalize” the peso.

I thought I was a bit difficult to surprise. But I was shocked when this big bank told me that we should ‘globalize’ the peso,” Aquino reportedly said. “Never had I thought that anyone would ever make such a suggestion, believing that the Philippines is in such a good shape that he would be willing to invest in our currency because he believes in the stability of our economy.”

Several of my more economically savvy friends suggested that what is very much more likely in this case is that PNoy has a poor sarcasm detector. And they may be right; the suggestion the unnamed “international banker” made is actually kind of vacuous.

“Internationalizing” the peso simply means that it could be used for transactions by non-residents; the particular benefit would be that Philippine companies could invoice exports and pay for imports in the native currency, which would largely eliminate their foreign exchange costs. A couple of news reports also pointed that “internationalizing” the currency would also allow the government to “issue peso-denominated debt overseas more competitively,” whatever that means.

Excited by the prospect, Aquino informed his audience (one has to wonder if people actually show up voluntarily to these frequent lectures he delivers in foreign places) that he would have Finance Secretary Cesar Purisima “study the proposal,” even though that’s not really Purisima’s job, but would rather fall under the purview of the Treasury and the BSP.

The thing is, the term “internationalize” as it is used in this weird story means almost nothing, as it is not up to the Philippine government to determine whether its currency is “international” or not. That is, instead, determined by the central banks of other countries; if they decide that they will accept the peso as foreign exchange, then it will be for all intents and purposes “international.”

For example, the BSP accepts 18 different foreign currencies for exchange; those are, from the point of view of the Philippines, “internationalized.” Where the peso is accepted for exchange in other countries, it is an international currency. At present, the peso is accepted by at least 17 countries, including all the ones whose currencies are considered index currencies throughout the world—the United States, United Kingdom, European Union, Japan, Hong Kong, and others.

What the French “international banker” (if he really exists) actually seemed to be suggesting was that the Philippines should consider loosening its already rather liberal foreign exchange regulations, the rules that dictate who can transact in foreign currency and pesos, and the amounts of currency that can be moved. If so, that is a dangerous suggestion. The basic effect of having an “internationalized” currency is to increase the amount of domestic currency coming into the country; in other words, if the Treasury were to issue peso-denominated bonds in an overseas market, the purchase of those bonds effectively increases the money supply here at home. That creates a big risk of inflation.

Even though the increase in money supply from a bond issuance would theoretically cancel itself out once those bonds become payable, that assumes the money supply would otherwise be static during the term of the bonds, which it never is; part of the evidence for “the stability of our economy” has been the steady growth of money supply.

An increase in money supply, of course, leads to inflation, and the BSP has had to take strenuous action to keep both under some semblance of control; adding another aggravating factor to that equation would not be wise. If inflation was running at about 2 percent and the money supply was growing at a rate that approximated the yield on 5- or 10-year peso-denominated bonds, stroking B.S. Aquino’s ego to take window-dressing steps to “internationalize” the peso would not be so risky.

At this point, however, both inflation and M3 growth are way over those thresholds, and the country’s monetary authorities—the folks who actually understand finance and macroeconomics—should regard the President’s enthusiastic “internationalize the peso” statement as just another one of those bizarre things he occasionally blurts out, and quietly continue with what they have been doing, which has done more to support the economy in the past four years than anything that’s been dreamed up on the other side of the Pasig River.



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  1. Makabayan Lamang on

    During his government the French have long understood that the people ravaged by Yolanda did not receive their fundings and help extended to them, leading french president Francois Hollande underlining climate change on their joint press conference. And as a Filipino watching it gives you more shame than than, for observing the event where the french president is serious and businesslike you have BS Aquino smiling like an idiot likea child or much worst a retarded with overflowing pride that his persona could take.

    A proud pinoy but so ashamed of my government!

  2. Makabayan Lamang on

    The french perception of him is a person very undeserving of his position for how can a President not know how to respect time? Firstly he was 15 minutes late on the wreath laying at the Arc de Triumph wherein lies the the flame over tomb of the unknown soldier symbolizing those that perished during the 1st world war a supposedly solemn event that he should respect. Then he came disgracefully 1 hour and and a half late to address Ofw’s in Paris. All he gave was his dog’s smiles and blames for past administrations, apart from his seemingly gleaming clean cabinet.

  3. Makabayan Lamang on

    Boasting that he have or is trying to abolish corruption led by his predecessor and he have put them behind bars with so many cases filed to affront but he forgot mentioning that he legalized corruption by creating DAP and continuously protecting Abad’s brainchild to bring the Philippines to further economic slumber and many more terrors to come. 90 percent of his speech was based on assumptions and unblinking lies

  4. Makabayan Lamang on

    It would make you guys laugh harder or distraught if you’ve heard that in Paris he announced that he have added more than 20,000 kilometers only to the national roads in the Philippines saying its like a 4 aller-retour from Laoag Ilocos Norte to a certain town in Mindanao. That he have abolished “Wang-Wangs” which in fact was a law promulgated by Former President Marcos.

  5. PNoy must have gone bankrupt of issues to talk about. As a graduate of Economics myself, my understanding of “Internationalizing” a currency and in this case, the peso is simply making it negotiable in foreign countries and that would depend on the concerned foreign government and not by the Philippine government. It’s good because once you’re in a foreign country, you can pay goods and services in Pesos and you don’t need to exchange your pesos with the money changer before making the purchase.

  6. victor m. hernandez on

    To be fair, the peso is alreaady “internationalize”. Even Asian Development Bank already offers peso denominated loan on top of foreign denominated loan. It is not only possible, it is now being done. It is not really a big fuss.P-Noy of course, wishes that it be studied more thoroughly before going full blast, if warranted.

  7. “laughing” My, I didn’t that our “beloved” president was capable of making such good and funny jokes….wait he was joking!?

  8. It is a case of “Little knowledge is dangerous”. And for an Economics graduate of Ateneo, this one is for the laughs.

  9. “Internationalizing the Peso” is indeed a wild thought and can again be indexed as he was again just joking

    But a wild thought also is this: With the “internationalized” Peso, what will stop foreign employers of OFWs to pay these OFWs with salaries indexed against local wages in the Philippines? That is ” apple-to-apple”.

    With that wild thought, OFW remittances will plummet and so is the Philippine economy. Consider that the Philippine economy is just under the life-line of OFW remittances

  10. Well…. a long time ago President Fernando Marcos also had a team to “internationalize” the Pilipinas currency. And remember when some Pinas generals/etcetera were discovered with this projecvt to “internationalize” the Pilipinas peso? You know…. moving pesos to foreign bank accounts? For their retirement.