BSP Pushes Reserve Buffer Creation

MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo is pushing for the creation of a reserve buffer fund for losses arising from exchange rate fluctuations.

Guinigundo explained: "It is important to emphasize that the BSP fulfills a very unique role of helping stabilize the economy especially during periods of external shocks (and) particularly just like now, there's so much risk aversion so people are pulling out their money from advance economies and going into emerging markets including the Philippines, and so this leads to the issue of capital flows."

In its balancing act of trying to keep capital flows from influencing the peso to appreciate too much which has inflationary pressures, the BSP has had to put up reserves to avoid incurring huge foreign exchange-related losses.

"(With surges) in capital flows, it is important that we guard against the over strengthening or excessive appreciation of the peso against the US dollar for competitiveness considerations," Guingundo stressed. "In the course of our participation in the foreign exchange market, we become long in dollars and then when/if the peso appreciates, we lose."

The central bank referred to the reserves buffer as a "rainy day" provision which he said is necessary "considering the significant risks and exposures that are inherent to central banking functions."

This provision is not new to the world of central banking. The government of Korea extends budgetary assistance when Bank of Korea's reserves reach insufficient levels and that the state also absorbs losses and then provides additional budget. The European Central Bank also provides monetary income to the European System of Central Banks if needed.

The BSP cited other countries such as the US, Switzerland, Chile, Mexico, Germany, Netherlands, United Kingdom, Japan and Mexico which have varying policies and provisions which will assist their respective central banks in maintaining or boosting reserve buffers and restock surplus funds for contingency reserves.

The setting of reserves to deal with losses stemming from foreign exchange fluctuations is a sore subject between the BSP and the Commission on Audit (CoA).

The BSP has again and again disputed CoA's claims that it is under-declaring its profits and losses. The issue debated was the distribution of the BSP net income relative to the provisions of both Republic Act No. 7656 or the "Dividends Law" and its own New Central Act or Republic Act 7653 as a special law establishing the BSP as an "independent and accountable body".

BSP argued that it has authority to maintain reserves and to deduct the necessary reserves when calculating its net profits. It cites sections 43, 44 and 132b of the BSP charter as basis for these exclusions.

Unlike other government owned and controlled corporations, the BSP is the only government corporation that remits 75 percent of its net earnings to the National Government as dividends while the remaining 25 percent was residual surplus reserves.

"Some of those incomes are unrealized but because of this kind of computation, realized or unrealized, we have to remit to the NG. But supposed the following year BSP incur significant losses from foreign exchange fluctuations ... what happens to the loss? It's only the BSP that shoulders all the loss," said Guinigundo.

Last year, the BSP posted unaudited net losses of P33.69 billion while foreign exchange losses reached P36.22 billion.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • US missile cruiser docks at Subic
    US missile cruiser docks at Subic

    A US Navy missile cruiser has dropped anchor in Subic Bay as part of “routine port call,” amid rising tension in the West Philippine Sea stirred by China’s island building activities and other threatening moves by its forces. The arrival of the Ticonderoga-class missile cruiser USS Shiloh (CG-67) at the Subic Bay Freeport in Olongapo City yesterday was “just a routine port visit for ship replenishment and routine maintenance of shipboard system,” said Philippine Navy Public Affairs Office …

  • Agri, power sectors should brace for El Niño
    Agri, power sectors should brace for El Niño

    The agriculture and power sectors, as well as the general public should brace for a prolonged El Niño phenomenon that could further reduce water supply for electricity and irrigation, the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) warned yesterday. Flaviana Hilario, acting deputy administrator for research and development of PAGASA, said the El Niño condition is expected to intensify from weak to moderate by August this year. Anthony Lucero, …

  • China to US: Help cool down Phl on sea row
    China to US: Help cool down Phl on sea row

    The US should help “cool down” the Philippines and realize that its meddling in the West Philippine Sea (South China Sea) dispute would only stir tensions, a Chinese newspaper reported. “Washington should know its meddling in the South China Sea has been destabilizing the region. The US has vowed not to take sides in the territorial dispute, which involves China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan. …

  • No stopping K to 12 despite SC case, protests
    No stopping K to 12 despite SC case, protests

    K to 12 is the fruit of years of comprehensive consultations involving different sectors in education,” Aquino said during the launching of the program at the Philippine International Convention Center (PICC) in Pasay City. Organized by the Department of Education (DepEd), the launch was attended by teachers, students and representatives from different stakeholders supportive of the K to 12 program. It was held two years after the signing of Republic Act 10533, or the Enhanced Basic Education …

  • MNLF pushes review of peace pact with gov’t
    MNLF pushes review of peace pact with gov’t

    The Moro National Liberation Front (MNLF) maintained its bid for completion of the tripartite review of the implementation of the peace agreement with the Philippine government in 1996. The MNLF’s desire to put consensual closure to the tripartite effort was relayed by its leaders to Sayed El-Masry, the special envoy of the Organization of Islamic Cooperation (OIC), during the annual foreign ministers conference in Kuwait last Thursday. The MNLF peace agreement with the government in Sept. 2, …

  • Noy to raise sea dispute issue with Abe
    Noy to raise sea dispute issue with Abe

    President Aquino is expected to raise the West Philippine Sea dispute during his meeting with Japanese Prime Minister Shinzo Abe in Japan next week. Aquino will leave for Tokyo on June 2 for a state visit until June 5. The President’s visit would boost relations between the two countries on all aspects including defense and security, according to Foreign Affairs Assistant Secretary for Asian and Pacific Affairs Minda Cruz. …

  • CHED releases wrong data on tuition hike
    CHED releases wrong data on tuition hike

    The Commission on Higher Education (CHED) appears to have released erroneous data on the allowed tuition and other fee increases in Metro Manila for the incoming academic year. On the list of the 51 approved higher education institutions (HEI) allowed to impose hikes, CHED pegged the average increase in tuition at P32.34 per unit and the average increase in other fees at P34.79. However, a Philippine STAR re-computation showed that the actual average approved tuition increases in Metro …

  • Leni Robredo may run for senator
    Leni Robredo may run for senator

    The widow of the late Interior Secretary Jesse Robredo admitted that running for higher office in 2016 had crossed her mind. Camarines Sur Third District Rep. Leni Robredo said she is focused on her re-election, but there is always the possibility that she would seek higher office. “There is always that possibility… because the filing (of certificate of candidacy) is in October yet,” Robredo said in an interview after her speech during the 23rd Girl Scouts of the Philippines Council …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options