Signing Ceremony
Memorandum of Agreement among the Initial Members
Of the Philippine RMB Trading Community
October 30, 2018
Today we take an important step towards deepening our economic relationship with China. Thirteen Filipino banks and the local branch of the Bank of China will sign a memorandum of agreement that will lead to the establishment of a trading platform between the Philippine Peso and the Chinese Renminbi.
Trade and tourism between the Philippines and China has grown at a breathtaking pace in the last two years. Today, China is the largest merchandising trading partner of the Philippines. By the dictate of history, geography, and sheer practicality, we expect this economic partnership to grow and become even more intensive in the coming years.
Last year, tourist arrivals from China nearly broke the one million mark. This year, we can reasonably expect an even more dramatic increase in tourist traffic between our two countries.
China has also committed to buying more of our exported products. In fact, next week, China is holding for the very first time in history of any country an expo not to sell their products but to buy products from other countries. Beyond that, we look forward to the stronger stream of direct investments from China. Last year, Chinese overseas direct investments amounted to $120 billion covering 174 countries and jurisdictions. We expect to win a larger share of that investment flow in the coming period.
Our growing economic partnership notwithstanding, transactions involving our two currencies involved pricing each according to their respective exchange rates with the US dollar. This process implied unavoidable costs to the transactions. It created friction that slowed down trade and investment. It is our estimate that our businessmen could have saved as much as 3 percent of transaction value if we had a trading platform for both our currencies. That will add up to a substantial sum given the exponential growth of our business partnerships.
We are now taking the first steps toward building that mechanism for the direct conversion of our currencies. The volume of business between our two economies justifies establishing this. The banks participating in this memorandum of agreement will set in motion the process of setting up a self-regulating organization that will oversee a transparent currency trading platform. We anticipate a significant reduction in the cost of doing business across our two economies as a result of this.
This currency trading platform will bring benefit to both private enterprises as well as the government. We foresee improved access to China’s bond market using the price discovery process created by this mechanism.
I am sure that after the signing of this memorandum of agreement, the process will advance very quickly. Several other countries in the region have existing Renminbi platforms. We can learn from their best practices. It should not take us more than a few months to build a fully functioning platform supervised by the Bangko Sentral ng Pilipinas (BSP). From the initial 14 banks engaged in this process, the doors could be open even wider to other institutions seeking to participate in the trading platform. We also hope that this RMB platform is just the first step as we take many steps towards setting up similar arrangements with other currencies.
In fact when I was in the banana business forty years ago, I always used to wonder why we had to sell our bananas into the yen market in dollars. Well, there was no platform then, and I understand there’s still no platform now for yen-peso direct exchange, and I think that should be the next thing we should think about.
The road to the document we will sign today was opened during President Rodrigo Duterte’s state visit to China in October 2016. In the course of that meeting, the leaders of our two countries expressed willingness to actively promote regional financial cooperation through the establishment of a bilateral currency swap arrangement. In January of this year, the BSP Governor gave his approval for both sides to proceed with the technical discussions.
Last week, in fact up to yesterday, the State Councilor and Foreign Minister of China, Mr. Wang Yi, was in town, and I did mention to him that this document is going to be signed today. And he encouraged us to include at least an exchange of documentation in front of President Duterte and President Xi Jinping when he comes to visit us in the third week of November. So I hope something can be worked out both through our DFA and the Chinese Embassy here.
In closing, let me give proper credit to the Bank of China for introducing the idea for this currency platform and doggedly pursuing it over the past few years. The Bank of China was convinced early on that establishing a platform for direct conversion between the peso and the Renminbi would greatly improve the competitiveness of the Philippine economy. This was the experience of both Malaysia and Singapore when they established such a platform.
We take this major step forward in the economic partnership between the Philippines and China. On both sides, there is confidence that this partnership will bring great benefits to both our peoples. This is a partnership nurtured by the warm friendship between our two countries.
Thank you and good afternoon.
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