Monday, 6 July 2009

Renminbi growing in Philippine forex reserves

Jun Vallecera
Business Mirror

THE country’s international reserves of some $39 billion at the moment is increasingly denominated in Chinese renminbi, also called the yuan.

Since allowing full convertibility of the renminbi with the peso two years ago, the currency holdings of the Bangko Sentral ng Pilipinas (BSP) in China’s medium of exchange has grown in stature and importance.

“We have more non-US-dollar assets now,” BSP Governor Amando Tetangco Jr. said on Friday at the sidelines of ceremonies marking the BSP’s 16th anniversary as the new central bank.

While he did not reveal the exact proportion of reserves denominated in Chinese renminbi, Tetangco said prudent central banks always diversify their holdings of currency to approximate trade data.

“Well, the trend really, and I think this is going to continue, is for central banks, including emerging central banks, to diversify more.

“Rather than looking at the possibility of a unipolar world where you only have one reserve currency, we will probably see a multipolar world where you have more than one reserve currency,” Tetangco said.

He noted that Philippine trade with countries in the region, particularly with China, has risen in recent years although this continues to be settled in US dollars.

While the bulk of international reserves is in US dollars, about a third of it is in Japanese yen and a little less in euro, the currency of the European Union.

A few years ago, the government sold euro-denominated bonds to help it bridge finance a yawning budget deficit. But according to Tetangco, the US dollar and its debt markets “will continue to be the key reserve currency for some time to come because trade transactions and investments continue to be denominated mainly in US dollar and settled in the US dollar.”

“There is a big and deep financial market in the US and the liquidity in the financial markets is such that it provides greater flexibility to US dollar asset holders to continue holding the US dollar,” he said.

Additionally, he said, there is a robust payment and settlement system for the US dollar at this time.

But in the years to come, central banks around the world, the Philippines included, will diversify their assets holdings more into non-US dollar assets, Tetangco said.

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