felipe m medalla : banking on solid ground - the role of banks in postpandemic recovery speech by mr felipe m medalla, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the bankers'association of the philippines ( bap ) 2nd ceo forum, manila, 24 october 2022. * * * to our friends – my friends – in the banking industry, my own colleagues from the central bank who are here, guests, good afternoon. it is great to see familiar faces, especially after what i thought was a very joyful reunion that we had at the central bank after almost three years. thank you for inviting bsp to your second ceo forum and for the opportunity to speak to all of you. we at the bsp have always valued these kinds of discussions. indeed, i look forward to what you have to say after my speech. do not worry if it is critical of the central bank – i will not remember if it is you who said it ; i will blame it on another bank. clarity of policy intent i have always believed that the bsp is more effective when you understand us – not just what we do, but why we do it – especially at a time like this where there is so much confusion. " is the central bank still an inflation - targeting central bank, or has it become an exchange rate - fixing central bank? " because - if you are fixing the exchange rate, then your interest rate is [ equivalent to ] the us interest rate plus the risk premium. in the absence of risk, like depreciation, [ and ] because no country ever defaults on its own currency, then we just go to where it is [ the interest rate ] higher, as shown in hong kong. hong kong cannot have an interest rate different from the united states. indeed, i ran a few regressions where the correlation between market rates in hong kong is much closer to the united states than any other country in the sample that i have for a very simple reason – it is a fixed exchange rate. so, this has to be explained : why does it seem like we are " too concerned " about the exchange rate? why were we not as concerned before? but before i do that, i must address the topic, which is your role. congruence of goals in summary, your role is very simple : do your job well. there is no other industry where doing your job well

the reopening of economies, remittances grew by 5. 1 percent in 2021 and 2. 4 percent in the first quarter alone of this year. another source of foreign exchange are receipts from business process outsourcing services. they grew by 9. 5 percent last year. in lien with the depreciation of other emerging market currencies due to the ukraine - russia conflict, the peso posted a manageable year - to - date depreciation of 2. 6 percent to 52. 37 pesos. the bsp observes a market - determined exchange rate policy. it intervenes only to ensure orderly market conditions and prevent excessive short - term volatility. another strength of the philippine economy is our sound and stable financial system, an offshoot of a long list of regulatory reforms since the asian financial crisis. prudent lending standards help banks keep their bad debts manageable while ample capitalization enables them to absorb shocks. credit rating agencies share the view of the philippine economy ’ s resilience. amid a wave of credit rating downgrades globally resulting from the pandemic, the philippines has managed to maintain all its investment - grade credit ratings. while policymakers were preoccupied with pandemic response, we did not lose focus on our vision of a stronger and more inclusive post - covid economy. the bsp is contributing to this vision through its digital transformation agenda. by 2023, bsp aims to digitalize at least half of retail payments and onboard at least 70 percent of filipino adults to the formal financial system through transaction accounts. complementing the agenda is the new financial products and services consumer protection act. the law improves the resolution mechanisms for financial consumer complaints, including those involving cybercrimes. the bsp has also issued six digital banking licenses. the covid - 19 pandemic emerged as a catalyst for digitalization. as a result of the pandemic, the volume and value of electronic payments in the country grew exponentially. the bsp also contributes to the vision of a stronger post - covid philippine economy through its sustainable finance agenda. we have issued regulations requiring banks to incorporate sustainability principles into their operations. we are also among the early investors in the bank for international settlements ’ green bond fund and the asian green bond fund. we did not sit idly by as the virus raged. congress approved three landmark laws that further open the philippines to foreign investors. there are the amended retail trade liberalization act, the