Bangko Sentral ng Pilipinas will consider a proposal from banks to establish a direct peso-yuan exchange facility in anticipation of increased use of the Chinese currency following its inclusion in the International Monetary Fund’s reserve currency basket.
“There are proposals to come up with a facility for having a direct peso-yuan exchange similar to peso-US dollar,” Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a late Monday interview in Manila, without elaborating on the timeframe.
The IMF last week decided to include the yuan in its Special Drawing Rights basket starting October next year, a step deemed a milestone in the currency’s internationalization. China was the Philippines’ second-largest trading partner in 2014 with total trade worth $18.3 billion.
Philippine lenders will need to provide the central bank with details of the proposal, Tetangco said. Bangko Sentral is considering increasing its holdings of Chinese yuan assets as part of diversification of its reserves, he said.
Deputy Governor Diwa Guinigundo said he also expected the rising use of the yuan or renminbi in the global bond markets.
“It is possible because the Chinese economy is now the second biggest in the world and therefore, in terms of cross-border transactions, the use of Chinese renminbi is expected to accelerate. So, ultimately, that will be felt in both the bond and foreign exchange markets,” Guinigundo said.
Guinigundo said the government might consider a yuan bond issuance in the future but it could depend on the requirement of the government and the private sector. “Our government is currently exposed in the US dollar,” he said.
Guinigundo said going forward, Bangko Sentral would consider yuan as part of its active reserve management or reserve portfolio.
Tetangco said the inclusion of the yuan in the IMF’s SDR basket would strengthen Bangko
Sentral’s plan to invest in China’s currency as part of its diversification policy.
Tetangco said it was also possible that yuan could account for a significant portion of the country’s foreign exchange reserves in the future.
The IMF announced the official recognition of the yuan as one of the elite currencies in the SDR basket alongside the US dollar, euro, Japanese yen and British pound. The SDR—while not a freely-traded currency—is important as an international reserve asset.
The decision would not take effect before Sept. 30, 2016 to allow users more time to prepare. The last time the SDR basket was modified was in 2000, when the euro replaced the German deutschemark and the French franc.
British bank Standard Chartered said the inclusion of the renminbi as a global reserve currency would have significant, game-changing effects on the rest of the world’s markets.
It also expects a gradual pick-up of diversification inflows into renminbi assets from international investors and reserves managers.