The government has signed the Restatement Agreement for the third Bilateral Swap Agreement (BSA) with Japan’s Minister of Finance through the Bank of Japan (BOJ), the Bangko Sentral ng Pilipinas (BSP) said.
In a joint statement, the BSP and the BOJ said the deal “enables the Philippines to swap its local currency against Japanese yen, in addition to US dollars of up to $12 billion equivalent for the Philippines and $500 million for Japan.”
“The authorities of both countries believe that the strengthened bilateral financial cooperation will contribute to the stability of financial markets, promote the use of local currency, including the Japanese yen in Asia in the medium term, and thereby further develop growing economic and trade ties between the Philippines and Japan,” it added.
The swap agreement allows both central banks to tap the deal once they experience a liquidity crunch.
Japan also signed a similar deal with Thailand, a move aimed at strengthening the Association of Southeast Asian Nation’s resilience to future financial crises. Under the agreement, the two countries will be able to swap their currencies with U.S. dollars when needed, with the size of the facility set at a maximum of $3 billion.
A currency swap deal allows signatories to borrow dollars from one another. Being the global reserve currency, the dollar tends to run dry in times of financial crisis.
Asia experienced the adverse effects of this phenomenon most keenly during the Asian Financial Crisis of the late 1990s.
Japan also agreed in principle to conclude a bilateral swap arrangement with Malaysia worth up to $3 billion.
In a joint statement, both countries said that “the authorities are currently undertaking the necessary actions to complete their respective domestic approval process.”
The agreement was reached Friday at a meeting between the finance ministers and central bank governors of Japan and Asean countries at the Asian Development Bank’s annual gathering in Yokohama.
At the meeting, Japan also proposed to Asean to make it possible to withdraw Japanese yen under the existing bilateral swap deals, should the Asean countries request to do so.
Japan also hopes to establish a new type of bilateral swap arrangement worth up to $40 billion to address short-term liquidity problems.
Japan’s push for a yen-swap framework comes as Asean members look to wean themselves off the dollar. In 2015, Vietnam set a zero interest rate on dollar deposits to encourage the use of other currencies. Indonesia mandates that settlements made inside its borders be in rupiah.
“Looking back at 2008 (when the financial crisis hit), there was no dollar in the market, and with the dependency on dollars, that caused problems,” Japanese Finance Minister Taro Aso told reporters after the meeting.
“The yen is a stable currency, and I think it could play a huge role [in those circumstances]. We had a strong request from Asian countries [about the yen-swap framework], and we thought it was important to answer those needs.”
Japanese companies within the Asean would also find relief in a framework that gives their overseas trading partners easy access to the yen during crises.
For these companies’ exports to the rest of Asia, the yen was used for 46 percent of transactions during the latter half of fiscal 2016, almost on par with the dollar’s 48 percet.
Small and midsize Japanese companies are generally reluctant to take risks associated with currency shifts and favor yen-based transactions.