THE BANGKO SENTRAL ng Pilipinas (BSP) has forged agreements with the central banks of Indonesia, Malaysia and Thailand as they look to set up direct settlement systems across currencies.
In a statement, the BSP said Governor Benjamin E. Diokno signed bilateral letters of intent with his counterparts Governor Perry Warjiyo of Bank Indonesia (BI), Governor Nor Shamsiah Yunus of Bank Negara Malaysia (BNM) and Governor Veerathai Santiprabhob of the Bank of Thailand (BoT) on Friday. These are meant to kick off formal discussions to set up local currency settlement frameworks between their countries, in keeping with regional integration.
The heads of central banks flew to Chiang Rai in Thailand for the ASEAN Central Bank Governors’ Meeting, where they considered the creation of direct currency exchanges. At present, most peso conversions into other currencies still have to pass through the US dollar, which adds to the cost of foreign exchange.
“The greater use of local currencies in settlement of trade and other areas is aimed at reducing the transaction costs and foreign exchange risks particularly amidst the current volatility faced by currencies in advanced economies,” the central banks said in a joint statement.
Currently, only the central banks of Indonesia and Thailand have a local currency settlement framework in place.
Last October, the Bank of China and 13 other lenders operating in the Philippines agreed to set up a peso-renminbi spot trading facility to allow direct conversions between the two currencies. This is expected to improve payment efficiency and lessen costs for importers and exporters, doing away with the use of the dollar in the process.
These new talks also build on the economic integration of member-states of the Association of Southeast Asian Nations (ASEAN), with the central banks also in the middle of negotiations for cross-border banking arrangements.
“The wider use of local currencies in the ASEAN Economic Community enhances economic and financial integration, as well as spurs further development of the foreign exchange and financial markets within the region,” the statement also read.
In 2017, the BSP signed letters of intent with BI and BoT to potentially allow qualified ASEAN banks to operate freely across member-economies in the region, subject to the regulations set by the host economy. So far, the central bank has completed such talks with BNM, with an agreement in place to allow three banks from one country to venture into the other.
The regional banking synergy is expected to unlock more opportunities for cross-border finance and regulatory cooperation, while also stoking increased intra-regional trade. — Melissa Luz T. Lopez