MANILA, Philippines - The newly expanded currency swap deal with Japan will further boost the country’s defenses in times of economic crisis, the Bangko Sentral ng Pilipinas (BSP) said over the weekend.
BSP Governor Amando M. Tetangco, Jr. told reporters that aside from doubling the amount of the agreement, a new “precautionary portion†has been in added to better protect both economies from financial stress.
This precautionary portion means that the countries may tap the deal even before a crisis erupts.
“So before you encounter the problem, say, a BOP (balance of payments) crisis, or you’re already seeing signs there might be a crisis... it’s there,†Tetangco said.
Previously, the bilateral deal only covers a crisis resolution condition, he said.
Japan and the Philippines, through the Bank of Japan and the BSP, agreed to expand its currency swap agreement.
Under the new arrangement, the BSP can now swap up to $12 billion, double the previous amount of $6 billion, while the BOJ can swap up to $500 million.
Tetangco said the two central banks have not discussed the $500-million component, but the amount will “likely†be retained.
“It’s reassuring for the market that the facility is there, that it is broadened and increased,†Tetangco said.
Bilateral swap agreements were introduced during the aftermath of the 1998 Asian financial crisis to protect economies from economic stress.
Countries pledge a sum of funds another can use in times of a liquidity crunch.
Together with regional safety nets such as the Chiang Mai Initiative Multilateralization (CMIM) agreement, in which members of the Association of Southeast Asian Nations can tap a pool of funds in times of financial crisis.