BS Review - 2008

Abstract

What Drives the Peso's REER Index? Some Implications on Competitiveness
Arnelyn May A. Abdon and Rhea C. Hernando

Before it was affected by the ongoing global financial turmoil, the peso was strengthening markedly against the US dollar. The nominal appreciation of the peso against the US dollar, particularly in 2007, has raised valid concerns on its potential adverse impact on the peso’s external price competitiveness and its consequences for export growth. The real effective exchange rate (REER) index of the peso is the primary benchmark of the peso’s international competitiveness. An increase (decrease) in the peso’s REER index translates into a loss (gain) in external price competitiveness. This paper examines the major factors behind the movements in the REER index and further tests for the existence of the J-curve phenomenon, if indeed real exchange rate changes have an impact on the trade balance. Finally, the paper identifies implications on the peso’s external price competitiveness and the subsequent impact on trade performance. To achieve its three-fold objectives, the paper utilizes the following techniques: decomposition of the changes in the REER index; trend analysis; and vector error correction. The reesults suggest that the peso’s external price competitiveness is not determined solely by the nominal peso-dollar exchange rate level. The country’s monetary policy direction as well as foreign monetary policies also affect the peso’s REER index, and its competitiveness vis-à-vis its trade partners’ currencies.

Interlinkages Between Payment and Settlement Systems and Financial Stability and Monetary Policy
Ma. Cyd N. Tuaño-Amador

The resilience of the infrastructure of payment, clearing and settlement systems to both operational and financial shocks is a key requirement of financial and monetary stability. Policymakers and market participants oftentimes take for granted that the payments and settlements system will perform as solidly under market stress as it does under normal conditions. The recent global financial turbulence has served as a test of the robustness of payments systems, and their smooth performance thus far amid financial market disturbances has helped to preserve confidence in the payments infrastructure.
Nevertheless, authorities cannot afford to be complacent. Given the changes and increasing complexity of financial markets, central banks need to have a good understanding of the inter-linkages of the payments system with monetary policy and financial stability. They will also need to cooperate closely in their oversight and operational activities as well as in risk assessment, and foster continuing dialogue with market infrastructure providers and participants.

The BSP's Payments and Settlements System
Bella S. Santos

Views from Washington: The International Monetary Fund: A New Income Model
- Wilhelmina C. Mañalac

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