The Bangko Sentral ng Pilipinas (BSP) is confident that with rising gold prices, it will not need to put aside capital reserves as provision for foreign exchange (FX) since there are enough dollar stocks to cover for potential losses due to FX operations.

BSP Managing Head Willie S. Asto, in a paper submitted to the Monetary Board, has not recommended the setting up of additional capital reserve provision for FX rate fluctuation.

"(The) continued price appreciation of gold in the world market does not warrant additional set up of capital reserve for price fluctuation of gold," the report from BSP's Comptrollership Sub-Sector which Asto heads, said.

Gold price at above $1,260 an ounce is a record high. Gold is a preferred investment especially in uncertain economic times as alternative to securities and bonds. BSP's gold hoard as of end of May amounts to $6.74 billion from $5.39 billion in January.

In previous years, Asto explained, the set up of additional capital reserve for FX rate fluctuation was based on actual net realized gains from fluctuation in FX rates. However in 2009, the central bank incurred P9.67 billion in net loss realized from dollar-related transactions.

Reserves for fluctuation in FX rates were first set up in 1998 to serve as repository of provision for potential losses arising from volatility of the exchange rates and price of gold. The additional provisions are set aside quarterly from the net realized gains from FX rates fluctuations.

In 2008, the BSP reported some P60-billion worth of realized gains from fluctuations in FX rates, which were reclassified as capital reserves.

In that year, total capital reserves amounted to P231 billion, gaining P67 billion over 2007's P164.4 billion.

The realized gains from fluctuations in FX rates were used to "augment the depleted amount of reserves" due to significant net realized losses on fluctuations in FX rates of P113.7 billion in 2007.

The Monetary Board earlier reviewed a potential P5 billion of realized gains from fluctuations in FX rates, which could be converted as capital reserve. There were also proposals to amend accounting policies and procedures in booking realized and unrealized gains and/or losses from FX rate fluctuations upon the  recommendation of the World Bank, but the Monetary Board has deferred any decision regarding the proposed changes pending further studies and review on the matter.