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Philippines Launches Real-Time Gross Settlement for Peso-Dollar Foreign Exchange Transactions

11.28.2003

The Philippines now has a Payment Versus Payment (PVP) System for US Dollar-Peso foreign exchange transactions, a world-class electronic real-time gross settlement system, that  averages $167 million or roughly P9.2 billion in daily transactions.

In signing ceremonies held for the system, Bangko Sentral Governor Rafael B. Buenaventura said PVP marks another milestone in the continuing alignment of the Philippine financial sector with global standards. He said PVP minimizes settlement risks inherent to dollar-peso foreign exchange transactions, encourages more trading, enhances market liquidity, and spurs the growth of the financial sector.

A joint project of the Bangko Sentral ng Pilipinas (BSP), Bankers Association of the Philippines (BAP), Citigroup Manila and the Philippine Depository and Trust Corporation (PDTC), PVP minimizes payments and systemic risk as final transfer in one currency takes place only if a final transfer in the other currency occurs. BAP President Cesar E.A. Virata describes the PVP system as “kaliwaan”  or simultaneous exchange.

PVP results from the linkage of two real-time gross settlement systems -BSP’s PhilPass for peso transactions of commercial banks and Citigroup’s Philippine Domestic Dollar Transfer System for the dollar transactions of commercial banks- with PDTC as designated clearing entity for the dollar-peso foreign exchange transactions of commercial banks under the BAP.

Citigroup Country Officer James Hunt said the launching of the PVP is yet another demonstration of the company’s commitment to the development of the Philippines and its banking system where it has been operating for over 100 years.

PVP, in operation for three weeks now, has been serving an average of 21 banks per day, according to PDTC President Cornelia C. Dagdag. So far, PVP’s biggest transaction for a day was recorded on November 12 with $254 million or P14 billion covering 207 transactions.

Governor Buenaventura said banks should also look at the possibility of applying PVP for foreign exchange transactions involving  the peso and the euro as the Philippines continues to diversify its trade and financial transactions in currencies.

As a further application of PhilPass, BSP is looking forward to the implementation of the Delivery Versus Payment (DVP) system which will include government securities traded by the Bureau of Treasury.

BSP’s PhilPass,  in operation since November last year, has markedly reduced settlement risks among participating banks with its real-time gross settlement system. It has been expanding its customer base which now includes 85 banks, 42 of which are commercial banks, 35 are thrift banks and eight non-banks with quasi-banking licenses. Even intranetwork settlement of Megalink ATM transactions are now settled through PhilPass.

On the average, PhilPass settles 2,200 transactions a day valued at nearly P200 billion.

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