BSP concerned over strong peso

The strong peso that this week hit its seven-year high of 43 to the US dollar is now a concern, according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo.

He was putting it mildly. The strong peso has been a great and major concern not only to the BSP but also to the exporters and to overseas Filipino workers (OFWs) since the peso’s rise from 50 to the dollar.

“It’s always a concern, and the role of the BSP in the foreign exchange market [is] precisely to moderate the volatilities,” Guinigundo explained.

Yet, he seems to contradict what could otherwise have been a statement of hope and enlightenment for exporters and OFWs.

A strong peso, the BSP deputy governor stated, is an indicator of confidence in the domestic economy.

If that is so, why is the BSP so alarmed with a strong peso gaining further strength so much so that it unleashed its dollar holdings to prevent the peso from becoming stronger?

On Tuesday the BSP was said to have bought about $200 million from the spot market so as not to further complicate the peso-dollar exchange rate that has made exports more expensive and has reduced the value of remittances in peso terms.

According to news accounts, the peso’s rally was tempered by the intervention by the BSP to provide exporters and OFWs a temporary sigh of relief.

To say it mildly, the BSP is in limbo, a confused soul not knowing how to call a peso strong or weak. It’s like one of Aesop’s Fables about the donkey that eventually fell into the river because the owner was torn between the cheerers and the howlers.

To recollect the old fantasies, the BSP was supposed to maintain a floating exchange-rate system based on supply and demand, and not on Bangko Sentral interventions.

The International Monetary Fund (IMF) was the prime mover of the floating exchange-rate system, and the Philippines was also an avid follower of this forced policy that is now and then questioned worldwide even by members of the IMF.

The floating-rate system was supposed to maintain a clean float as opposed to the dirty float some dollar traders resort to, but with the open admission of the BSP that it also engages in foreign-exchange interventions, the concept of supply and demand has become nothing but a clear fallacy.

The concern is becoming more worrisome with the influx of more foreign remittances in the next two months not only from OFWs but also from Filipinos who have already adopted foreign citizenships, especially those who have become permanent residents of the United States. 

E-mail: raulbvalino@yahoo.com.ph.

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