Bangko Sentral ng Pilipinas

The Central Bank of The Philippines has made some statements that would be helpful for the expat in understanding how an increase in the value of the Philippine Peso could hurt the economy of the Philippines.

Some expats, in their never ending moaning about the Philippines have stated that the BSP sets the rate of the Peso and we have no choice but to accept it.  That’s not true.  As I wrote, a central bank can influence the value of a currency but the rate is set  by  market conditions.  The banks can influence it by participating in the market.  This participation often comes in the detriment to the bottom line of the central banks.  They may take positions in a currency that an investor seeking to make a profit would not.

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Why would they do that?  In the words of the BSP according to Inquirer.net:

The BSP lost money in 2007 because of the sharp appreciation of the peso, which would have hurt exporters and families of overseas Filipino workers even more if not for market intervention done by the BSP.

When the peso appreciates significantly, the BSP usually buys dollars to temper the rise in the value of the local currency.

The BSP maintains a policy of letting the market determine the rate of exchange between the peso and other currencies, mainly the US dollar.

However, the BSP could intervene in the market if there are sharp and sudden fluctuations of the peso, which could hurt businesses

The BSP wishes to set aside “reserves” in case they must intervene again.  Some legislatures have questioned this practise as it is not in the BSP’s charter.  The reason the legislatures would be interested is that the BSP pays dividends to the government.  These reserves reduce the funds available to pay dividends.  The BSP says it needs to do this so that it  will remain in a strong financial position.

All of this seems reasonable and proper to me.  Is it manipulation, yes it is but the BSP can manipulate the value so much before it  bankrupts itself.  A bankrupt central bank would be very bad for  an economy.

Could someone with insider information use that to create profits for himself, yes, of course, just as they can in the USA.  In the USA, there are laws that prohibit that.  I don’t know about in the Philippines.  In any case, a single investor is unlikely to further influence the value of the currency.

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Filed under: Dollar To Philippine PesoLiving In The Philippines

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