Foreign Exchange Swaps Decline 60%

Article excerpt

MANILA, Philippines - The central bank's foreign exchange (FX) swaps amounted to $7.125 billion at the end of 2011, 60 percent or $10.72 billion lower compared to end-2010's $17.827 billion of forwards and futures positions of the monetary authority.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the BSP has been necessarily unwinding its FX swaps, just one of the set and usual ways of managing FX liquidity.

Forwards or swaps as derivative instruments are used as defensive approach to a volatile FX market. It is a financial transaction between two parties which agreed to exchange two currencies at a certain exchange rate in an agreed future date. FX swaps are part of the country's FX reserves but not officially reported in the gross international reserves.

In an interview earlier in the month, BSP Deputy Governor Diwa C. Guinigundo said it is normal that swap positions are declining. He explained that if a situation suggests problems in FX liquidity in the future, the banks' foreign currency deposit units (FCDUs) have more than enough FX supply to meet demand.

"We have FCDU deposits of $25 billion, so they will not go to the BSP to buy their dollar requirements, they will go to the FCDUs. …