Foreign exchange restrictions eased

Good news for people who are into forex. For the first time since the Asian currency crisis of 1997, the Bangko Sentral ng Pilipinas (BSP) adopted several new measures to liberalize foreign exchange trading effective April 2, 2007. The measure is an increase in amount of foreign currency that banks may buy which is known as the overbought limit, to the pre Asian crisis rate of 20 percent of unencumbered capital, or $50 million, whichever is lower. This represents a significant big leap from the present limit of 2.5 percent of a banks unencumbered capital, or $5 million, whichever is lower.

This new measures is going to give banks more flexibility to increase their foreign exchange holdings and would enhance the banks capability to service the increasing foreign exchange (forex) requirements of the corporate business sector and may contribute to further reducing exchange rate volatility.

The second measure that matches the first, by setting a limit on the amount of dollars that banks may to sell in the open market. The oversold position at 20 percent of unimpaired capital, or $50 million, whichever is lower, serves as a prudential measure to discourage excessive exposure of banks to foreign exchange risks. This formula is in line with the limits set by other countries in the region, and should be enough for banks to cope with the countryÂ’s growing foreign exchange requirements.

The central bank will also increase the limit on outward investments that a Philippine resident can make without its prior approval to $12 million a year, from $6 million. This increase is expected to allow greater portfolio and risk diversification and facilitate integration with global markets. Also to be raised is the limit on foreign exchange that clients can buy from local banks from the current $5,000, it will be raised to $10,000 per transaction, to cover payments to foreign beneficiaries for non-trade purposes without supporting documents.

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