The Bangko Sentral ng Pilipinas yesterday said it will continue to keep its reserves mostly in US dollars since the bulk of the country’s foreign debts are in dollars.

BSP deputy governor Diwa Guinigundo said contrary to suggestions of some lawmakers it is not practical to hold more euros or yen, the other major currencies in the reserves, as the European and Japanese economies are weakening.

"The BSP charter says we have to relate our holdings of foreign assets to our foreign liabilities.

Since our liabilities are held mostly in US dollars, we need to have more dollars in the reserves," Guinigundo said.

"The charter also says we should have a positive net foreign asset position. So if our liability, for example, is five, our assets should be six or higher," he added.

Rep. Danilo Suarez (Quezon), chair of the House oversight committee, has questioned the BSP’s insistence on keeping more dollars in its reserves when it can diversify into other currencies to cut losses from the greenback’s depreciation.

The BSP absorbed nearly P84 billion in foreign-exchange losses in January-November last year due to the continued appreciation of the peso against the dollar. The losses, unprecedented in the BSP’s history, resulted in its incurring nearly P63 billion net loss in the first 11 months.

According to monetary authorities, the BSP should not be blamed for the losses, since it stems from curbing the peso’s appreciation to protect exporters and overseas Filipinos.

The dollar accumulation is just a net effect of this process, officials said, and is not something that the BSP does on purpose.

Guinigundo said the BSP should not be even compared with commercial banks, which have a different mandate.

"We’re different because we’re not a trader. Banks earn money by the margins. We don’t do that.

We’re not allowed," he said.

"If, on the other hand, we do that, we need to hedge. If we lose, the general community would not forgive the central bank, which was doing a commercial banking operation," he added.

Guinigundo said the BSP should learn a lesson from Bank Negara Malaysia, which took a position on pound sterling, which was overvalued when they bought the currency.

The currency soon depreciated by more than 10 percent, resulting in the Malaysian central bank incurring $5-7 billion in forex losses, Guinigundo said.

Guinigundo said the euro or yen are not an option for the BSP.

"Some legislators are arguing why won’t we go to euro or yen to enable us cut the BSP’s forex losses. Why should we do that when the European and Japanese economies are not doing well," he said.

The BSP’s gross reserves stood at an all-time high of $36.1 billion in end-February, enough to cover 6.3 months of imports of goods and payments of services and income, and equivalent to 5.2 times the country’s short-term external debt based on original maturity and 3.3 times based on residual maturity.

Meanwhile, as of September 2007, the Philippines’ external debt stock amounted to $54.4 billion, more than half of which were denominated in US dollar. About a quarter of the debt were in Japanese yen.

The euro, which has also risen against the dollar, was among the 16 other currencies that comprised about 14 percent of the total external debt stock.