BSP to pursue more forex reforms

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said he will push to ease further foreign exchange rules to achieve a more transparent financial system.

“Part of reforms that I will be strongly advocating is the liberalization of our existing rules on FX transactions to make this a more risk-based but transparent system,” Espenilla said.

Espenilla said despite the waves of liberalization  announced by the central bank in the past, “we recognize that the FX market today remains restrictive, difficult, opaque, shallow.” 

Espenilla said the forex market had evolved from the time foreign exchange was scarce, reserves were meager and market confidence was very 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 the market itself. It simply adds to cost of doing business and just creates a bigger and bigger black market,” the governor said.

Espenilla said the development of the foreign exchange market was one of the very important focus of his term as Bangko Sentral governor. He said the reshaping of the financial system should continue to make it truly responsive to the needs of the domestic economy.

He earlier said the reforms to develop the local currency debt market were crucial components to sustain the economy’s growth momentum.

“Our growth cannot be just founded on lending by banks. As bank regulator, I know how unstable that situation can be. Banks are inherently short-funded. To be funding these long-term assets creates strategic instability that is very uncomfortable for regulators,” he said.

He said aside from developing the domestic debt market, the regulator could not also ignore what was happening in the foreign exchange market.

“Looking at the PDS [Philippine Dealing System], what’s being dealt, the order of the magnitude is about $600 million, but when we started collecting data to the money service businesses, it’s in the order of more than $1 billion. This is outrageous. For transactions to be happening in the unregulated parallel markets, this has got to change,” Espenilla said.

Bangko Sentral approved in December 2016 another round of foreign exchange liberalization with the entry of foreign banks in the country.

The regulator approved the amendments to the Manual of Rules on Foreign Exchange Transactions to align the same with the provisions of Republic Act 10641, which allows the full entry of foreign banks in the Philippines.

The law was signed by former president Benigno Aquino III, amending RA 7721 which limited the number of foreign banks that could enter the country to 10. The law,  signed in July 2014, allows foreign banks to own as much as 100 percent of any local bank, removing the previous cap of 60 percent.

The new regulation revised the definitions of unimpaired capital of a local bank, unimpaired capital of foreign bank branches and unimpaired capital of foreign bank subsidiaries as contained in the Manual of Regulations for Banks..

Bangko Sentral also previously allowed Philippine residents – both natural-born Filipinos and foreigners residing in the country – to purchase up to $500,000 in foreign exchange “without supporting documentation.”

This was more than four times than the original $120,000 cap. For companies, the limit was at a higher $1 million. 

The BSP allowed travelers to deposit foreign exchange purchased from banks for their use abroad in their foreign currency deposit unit accounts.