Up to $12B for BSP, $500M for BOJ
The Bangko Sentral ng Pilipinas (BSP) and its counterpart Bank of Japan (BOJ) signed the fourth Amendment and Restatement Agreement to their Third Bilateral Swap Arrangement (BSA), the Bangko Sentral said Monday.
“Japan and the Philippines believe that the BSA, which aims to strengthen and complement other financial safety nets, will further deepen financial cooperation between the two countries and contribute to regional and global financial stability,” the BSP said in a statement.
The bilateral deal is a two-way arrangement that allows both signatories to swap their own respective currencies for the US dollar. The arrangement also authorizes the Bangko Sentral to swap its peso holdings into the Japanese yen.
The size of the agreement remains unchanged: up to $12 billion or its equivalent in Japanese Yen for the Philippines, and $500 million for Japan.
Earlier, the Bank of Japan extended its bilateral agreement with the People’s Bank of China to October 25, 2027, allowing the two central banks to swap up to 200 billion in Chinese yuan and 3.4 trillion in Japanese.
With the swap agreement in place, the BOJ is prepared to provide liquidity in the Chinese renminbi in the event that Japanese financial institutions face unexpected difficulties in renminbi settlements, according to the BOJ’s judgment call on the liquidity provision that is necessary to ensure Japan’s financial system remains stable.
Apart from the Philippines and China, Japan has similar arrangements with Indonesia, Thailand, Singapore, Korea, Malaysia and India.
International Monetary Fund data showed that since the financial crisis of 2007, central banks around the world have entered into a multitude of bilateral currency swap agreements.
“These agreements allow a central bank in one country to exchange currency, usually its domestic currency, for a certain amount of foreign currency. The recipient central bank can then lend this foreign currency to its domestic banks, on its own terms and at its own risk,” the Fund said.
Bilateral swap deals have become a key layer of the Global Financial Safety Net (GFSN), according to the IMF. These deals are contingent arrangements to exchange currencies between two central banks, or in some cases between a central bank and a finance ministry. While the arrangements are often designed to alleviate foreign exchange liquidity pressures in the financial market, they might serve other purposes such as FX support to promote trade and investment.
As of end 2022, such arrangements spanned over forty countries, amounting to $1.4 trillion or 1.4 percent of global GDP.
Major central banks such as in Canada, the Euro Area, Japan, Switzerland, US, and UK have standing bilateral swap deals with one another with no explicit line limits.
There has also been a strong expansion of those agreements outside the central banks, particularly in the Asia-Pacific region, the European Union, the Americas, and the Middle East.
In 2010, the Association of Southeast Asian Nations (Asean), China, South Korea, and Japan established a network of bilateral currency swap agreements “to supplement the existing international facilities.”
The Chiang Mai Initiative (CMI) was multilateralized, meaning that it was converted from a network of bilateral agreements between countries into one single agreement, the Chiang Mai Initiative Multilateralization (CMIM).
The fourteen countries participating in the CMIM agreed to a certain financial contribution and were entitled to borrow within a range of multiples, from 0.5 for China and Japan to five for Vietnam, Cambodia, Myanmar, Brunei, and Laos.
In 2014, the size of the agreement was doubled from $120 billion to $240 billion, and the amount a country could access without being on an IMF program was raised from 20 percent to 30 percent.
These swap lines have never actually been used.
