BSP urged to let local firms enter into forward contracts

Industrialist Raul T. Concepcion is urging the Bangko Sentral ng Pilipinas (BSP) to allow local manufacturing firms to enter into foreign exchange forward contracts for their raw material importations.

According to Concepcion, the BSP’s restriction on such forward contracts is one reason why local firms continue to patronize the so-called parallel or black market.

Forward contracts allow a local firm to buy dollars at a specified rate at a future date, thus protecting them from sudden fluctuations. Such forward contracts are specially beneficial if the local currency is subject to depreciation.

Concepcion said local firms continue to patronize the black market to be able to hedge.

The BSP, however, allows forward contracts only in times of extreme currency volatily.

The BSP, in the past, observed that some banks used forward contracts to speculate against the peso, and, thus, restricted such contracts.

However, the country’s flourishing black market has been criticized by the Paris-based Financial Action Task Force (FATF) as a venue for money laundering.

The FATF, in fact, has asked the BSP to crack down on money changers which are presently not regulated by the BSP.

The BSP has agreed to monitor big money changers, but would not touch small money changers.

Concepcion agreed on the need to monitor money changers in order to be able to get more accurate data on foreign exchange transactions and actual market needs.