Introduction to Finance and Business Mathematics

RESEARCH
OUTPUT 4
IV. Central Banking and the Effects of
its Monetary Policies in the Country

Gabriel T. Valida
BSA - AC1A

Ms. Angelita Mando

Instructor
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TABLE OF CONTENTS:

Subtopic Page No.

I. ALL ABOUT BANGKO SENTRAL NG

PILIPINAS………………………….…….………………………………….. 2

II. PRIMARY OBJECTIVES OF BANGKO SENTRAL NG PILIPINAS

……..………………………………………………………………………….. 41

III. OPERATIONS OF BANGKO SENTRAL

………..………………………………………………………………………... 60

IV. GUIDING PRINCIPLES OF MONETARY ADMINISTRATION

………………………………………………………………………………….
93

REFERENCES……………………………………...…………………..…..… 110

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I. ALL ABOUT BANGKO SENTRAL NG PILIPINAS

Who We Are - History of the Bank
​ Chronology of Events: Central Banking in the Philippines​
​ ​

1900

Act No. 52 was pas​ sed by the First Philippine Commission placing all banks under
the Bureau of Treasury. The Insular Treasurer was authorize​ d to supervise and
examine banks and banking activities.

February 1929

The Bureau of Banking under the Department of Finance took over the task of
banking supervision.

1939

A bill establishing a central bank was drafted by Secretary of Finance Manuel Roxas
and approved by the Philippine Legislature. However, the bill was returned by the US
government, without action, to the Commonwealth Government.

1946

A joint Philippine-American Finance Commission was created to study the Philippine

currency and banking system. The Commission recommended the reform of the
monetary system, the formation of a central bank and the regulation of money and
credit.

The charter of the Central Bank of Guatemala was chosen as the model of the
proposed central bank charter.

August 1947

A Central Bank Council was formed to review the Commission’s report and prepare
the necessary legislation for implementation.

February 1948

President Manuel Roxas submitted to Congress a bill “Establishing the Central Bank
of the Philippines, defining its powers in the administration of the monetary and
banking system, amending pertinent provisions of the Administrative Code with
respect to the currency and the Bureau of Banking, and for other purposes.

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15 June 1948

The bill was signed into law as Republic Act No. 265 (The Central Bank Act) by
President Elpidio Quirino.

3 January 1949

The Central Bank of the Philippines (CBP) was inaugurated and formally opened with
Hon. Miguel Cuaderno, Sr. as the first governor.

The broad policy objectives contained in RA No. 265 guided the CBP in the
implementation of its duties and responsibilities, particularly in relation to the
promotion of economic development in addition to the maintenance of internal and
external monetary stability.

November 1972

RA No. 265 was amended by Presidential Decree No. 72 to make the CBP more
responsive to changing economic conditions.

PD No. 72 emphasized the maintenance of domestic and international monetary

stability as the primary objective of the CBP. Moreover, the CBP’s authority was
expanded to include not only the supervision of the banking system but also the
regulation of the entire financial system.

January 1981

Further amendments were made with the issuance of PD No. 1771 to improve and
strengthen the financial system, among which was the increase in the capitalization of
the CBP from P10 million to P10 billion.
1986

Executive Order No. 16 amended the Monetary Board membership to promote greater
harmony and coordination of government monetary and fiscal policies.

3 July 1993

Republic Act No. 7653 was passed establishing the Bangko Sentral ng Pilipinas
(BSP), replacing CBP as the country's central monetary authority.

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14 February 2019

Republic Act No. 11211 was passed amending RA No. 7653. The charter
amendments bolster the capability of the BSP to safeguard price stability and financial
system stability.
A Brief History of Central Banks
Michael D. Bordo
Download pdf
A central bank is the term used to describe the authority responsible for policies that
affect a country’s supply of money and credit. More specifically, a central bank uses
its tools of monetary policy—open market operations, discount window lending,
changes in reserve requirements—to affect short-term interest rates and the monetary
base (currency held by the public plus bank reserves) and to achieve important policy
goals.

Topics Monetary policy

12.01.2007ISSN 2163-3738 EC 12/1/2007
The views authors express in Economic Commentary are theirs and not necessarily
those of the Federal Reserve Bank of Cleveland or the Board of Governors of the
Federal Reserve System. The series editor is Tasia Hane. This paper and its data are
subject to revision; please visit clevelandfed.org for updates.

Listen to the audio recording below.

One of the world’s foremost economic historians explains the forces behind the
development of modern central banks, providing insight into their role in the financial
system and the economy.

A central bank is the term used to describe the authority responsible for policies that
affect a country’s supply of money and credit. More specifically, a central bank uses
its tools of monetary policy—open market operations, discount window lending,
changes in reserve requirements—to affect short-term interest rates and the monetary
base (currency held by the public plus bank reserves) and to achieve important policy
goals.

There are three key goals of modern monetary policy. The first and most important is
price stability or stability in the value of money. Today this means maintaining a
sustained low rate of inflation. The second goal is a stable real economy, often
interpreted as high employment and high and sustainable economic growth. Another
way to put it is to say that monetary policy is expected to smooth the business cycle
and offset shocks to the economy. The third goal is financial stability. This
encompasses an efficient and smoothly running payments system and the prevention
of financial crises.

Beginnings

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The story of central banking goes back at least to the seventeenth century, to the
founding of the first institution recognized as a central bank, the Swedish Riksbank.
Established in 1668 as a joint stock bank, it was chartered to lend the government
funds and to act as a clearing house for commerce. A few decades later (1694), the
most famous central bank of the era, the Bank of England, was founded also as a joint
stock company to purchase government debt. Other central banks were set up later in
Europe for similar purposes, though some were established to deal with monetary
disarray. For example, the Banque de France was established by Napoleon in 1800 to
stabilize the currency after the hyperinflation of paper money during the French
Revolution, as well as to aid in government finance. Early central banks issued private
notes which served as currency, and they often had a monopoly over such note issue.

While these early central banks helped fund the government’s debt, they were also
private entities that engaged in banking activities. Because they held the deposits of
other banks, they came to serve as banks for bankers, facilitating transactions between
banks or providing other banking services. They became the repository for most
banks in the banking system because of their large reserves and extensive networks of
correspondent banks. These factors allowed them to become the lender of last resort
in the face of a financial crisis. In other words, they became willing to provide
emergency cash to their correspondents in times of financial distress.

Transition
The Federal Reserve System belongs to a later wave of central banks, which emerged
at the turn of the twentieth century. These banks were created primarily to consolidate
the various instruments that people were using for currency and to provide financial
stability. Many also were created to manage the gold standard, to which most
countries adhered.

The gold standard, which prevailed until 1914, meant that each country defined its
currency in terms of a fixed weight of gold. Central banks held large gold reserves to
ensure that their notes could be converted into gold, as was required by their charters.
When their reserves declined because of a balance of payments deficit or adverse
domestic circumstances, they would raise their discount rates (the interest rates at
which they would lend money to the other banks). Doing so would raise interest rates
more generally, which in turn attracted foreign investment, thereby bringing more
gold into the country.

Central banks adhered to the gold standard’s rule of maintaining gold convertibility
above all other considerations. Gold convertibility served as the economy’s nominal
anchor. That is, the amount of money banks could supply was constrained by the
value of the gold they held in reserve, and this in turn determined the prevailing price
level. And because the price level was tied to a known commodity whose long-run
value was determined by market forces, expectations about the future price level were
tied to it as well. In a sense, early central banks were strongly committed to price
stability. They did not worry too much about one of the modern goals of central
banking—the stability of the real economy—because they were constrained by their
obligation to adhere to the gold standard.

Central banks of this era also learned to act as lenders of last resort in times of
financial stress—when events like bad harvests, defaults by railroads, or wars

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precipitated a scramble for liquidity (in which depositors ran to their banks and tried
to convert their deposits into cash). The lesson began early in the nineteenth century
as a consequence of the Bank of England’s routine response to such panics. At the
time, the Bank (and other European central banks) would often protect their own gold
reserves first, turning away their correspondents in need. Doing so precipitated major
panics in 1825, 1837, 1847, and 1857, and led to severe criticism of the Bank. In
response, the Bank adopted the “responsibility doctrine,” proposed by the economic
writer Walter Bagehot, which required the Bank to subsume its private interest to the
public interest of the banking system as a whole. The Bank began to follow Bagehot’s
rule, which was to lend freely on the basis of any sound collateral offered—but at a
penalty rate (that is, above market rates) to prevent moral hazard. The bank learned its
lesson well. No financial crises occurred in England for nearly 150 years after 1866. It
wasn’t until August 2007 that the country experienced its next crisis.

The U.S. experience was most interesting. It had two central banks in the early
nineteenth century, the Bank of the United States (1791–1811) and a second Bank of
the United States (1816–1836). Both were set up on the model of the Bank of England,
but unlike the British, Americans bore a deep-seated distrust of any concentration of
financial power in general, and of central banks in particular, so that in each case, the
charters were not renewed.

There followed an 80-year period characterized by considerable financial instability.

Between 1836 and the onset of the Civil War—a period known as the Free Banking
Era—states allowed virtual free entry into banking with minimal regulation.
Throughout the period, banks failed frequently, and several banking panics occurred.
The payments system was notoriously inefficient, with thousands of dissimilar-
looking state bank notes and counterfeits in circulation. In response, the government
created the national banking system during the Civil War. While the system improved
the efficiency of the payments system by providing a uniform currency based on
national bank notes, it still provided no lender of last resort, and the era was rife with
severe banking panics.

The crisis of 1907 was the straw that broke the camel’s back. It led to the creation of
the Federal Reserve in 1913, which was given the mandate of providing a uniform
and elastic currency (that is, one which would accommodate the seasonal, cyclical,
and secular movements in the economy) and to serve as a lender of last resort.

The Genesis of Modern Central Banking Goals

Before 1914, central banks didn’t attach great weight to the goal of maintaining the
domestic economy’s stability. This changed after World War I, when they began to be
concerned about employment, real activity, and the price level. The shift reflected a
change in the political economy of many countries—suffrage was expanding, labor
movements were rising, and restrictions on migration were being set. In the 1920s, the
Fed began focusing on both external stability (which meant keeping an eye on gold
reserves, because the U.S. was still on the gold standard) and internal stability (which
meant keeping an eye on prices, output, and employment). But as long as the gold
standard prevailed, external goals dominated.

Unfortunately, the Fed’s monetary policy led to serious problems in the 1920s and
1930s. When it came to managing the nation’s quantity of money, the Fed followed a

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principle called the real bills doctrine. The doctrine argued that the quantity of money
needed in the economy would naturally be supplied so long as Reserve Banks lent
funds only when banks presented eligible self-liquidating commercial paper for
collateral. One corollary of the real bills doctrine was that the Fed should not permit
bank lending to finance stock market speculation, which explains why it followed a
tight policy in 1928 to offset the Wall Street boom. The policy led to the beginning of
recession in August 1929 and the crash in October. Then, in the face of a series of
banking panics between 1930 and 1933, the Fed failed to act as a lender of last resort.
As a result, the money supply collapsed, and massive deflation and depression
followed. The Fed erred because the real bills doctrine led it to interpret the prevailing
low short-term nominal interest rates as a sign of monetary ease, and they believed no
banks needed funds because very few member banks came to the discount window.

After the Great Depression, the Federal Reserve System was reorganized. The
Banking Acts of 1933 and 1935 shifted power definitively from the Reserve Banks to
the Board of Governors. In addition, the Fed was made subservient to the Treasury.
The Fed regained its independence from the Treasury in 1951, whereupon it began
following a deliberate countercyclical policy under the directorship of William
McChesney Martin. During the 1950s this policy was quite successful in ameliorating
several recessions and in maintaining low inflation. At the time, the United States and
the other advanced countries were part of the Bretton Woods System, under which the
U.S. pegged the dollar to gold at $35 per ounce and the other countries pegged to the
dollar. The link to gold may have carried over some of the credibility of a nominal
anchor and helped to keep inflation low.

The picture changed dramatically in the 1960s when the Fed began following a more
activist stabilization policy. In this decade it shifted its priorities from low inflation
toward high employment. Possible reasons include the adoption of Keynesian ideas
and the belief in the Phillips curve trade-off between inflation and unemployment.
The consequence of the shift in policy was the buildup of inflationary pressures from
the late 1960s until the end of the 1970s. The causes of the Great Inflation are still
being debated, but the era is renowned as one of the low points in Fed history. The
restraining influence of the nominal anchor disappeared, and for the next two decades,
inflation expectations took off.

The inflation ended with Paul Volcker’s shock therapy from 1979 to 1982, which
involved monetary tightening and the raising of policy interest rates to double digits.
The Volcker shock led to a sharp recession, but it was successful in breaking the back
of high inflation expectations. In the following decades, inflation declined
significantly and has stayed low ever since. Since the early 1990s the Fed has
followed a policy of implicit inflation targeting, using the federal funds rate as its
policy instrument. In many respects, the policy regime currently followed echoes the
convertibility principle of the gold standard, in the sense that the public has come to
believe in the credibility of the Fed’s commitment to low inflation.

A key force in the history of central banking has been central bank independence. The
original central banks were private and independent. They depended on the
government to maintain their charters but were otherwise free to choose their own
tools and policies. Their goals were constrained by gold convertibility. In the
twentieth century, most of these central banks were nationalized and completely lost

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their independence. Their policies were dictated by the fiscal authorities. The Fed
regained its independence after 1951, but its independence is not absolute. It must
report to Congress, which ultimately has the power to change the Federal Reserve Act.
Other central banks had to wait until the 1990s to regain their independence.

Financial Stability
An increasingly important role for central banks is financial stability. The evolution of
this responsibility has been similar across the advanced countries. In the gold standard
era, central banks developed a lender-of-last-resort function, following Bagehot’s rule.
But financial systems became unstable between the world wars, as widespread
banking crises plagued the early 1920s and the 1930s. The experience of the Fed was
the worst. The response to banking crises in Europe at the time was generally to bail
out the troubled banks with public funds. This approach was later adopted by the
United States with the Reconstruction Finance Corporation, but on a limited scale.
After the Depression, every country established a financial safety net, comprising
deposit insurance and heavy regulation that included interest rate ceilings and
firewalls between financial and commercial institutions. As a result, there were no
banking crises from the late 1930s until the mid-1970s anywhere in the advanced
world.

This changed dramatically in the 1970s. The Great Inflation undermined interest rate
ceilings and inspired financial innovations designed to circumvent the ceilings and
other restrictions. These innovations led to deregulation and increased competition.
Banking instability reemerged in the United States and abroad, with such examples of
large-scale financial disturbances as the failures of Franklin National in 1974 and
Continental Illinois in 1984 and the savings and loan crisis in the 1980s. The reaction
to these disturbances was to bail out banks considered too big to fail, a reaction which
likely increased the possibility of moral hazard. Many of these issues were resolved
by the Depository Institutions Deregulation and Monetary Control Act of 1980 and
the Basel I Accords, which emphasized the holding of bank capital as a way to
encourage prudent behavior.

Another problem that has reemerged in modern times is that of asset booms and busts.
Stock market and housing booms are often associated with the business cycle boom
phase, and busts often trigger economic downturns. Orthodox central bank policy is to
not defuse booms before they turn to busts for fear of triggering a recession but to
react after the bust occurs and to supply ample liquidity to protect the payments and
banking systems. This was the policy followed by Alan Greenspan after the stock
market crash of 1987. It was also the policy followed later in the incipient financial
crises of the 1990s and 2000s. Ideally, the policies should remove the excess liquidity
once the threat of crisis has passed.

Challenges for the Future

The key challenge I see facing central banks in the future will be to balance their three
policy goals. The primary goal of the central bank is to provide price stability
(currently viewed as low inflation over a long-run period). This goal requires
credibility to work. In other words, people need to believe that the central bank will
tighten its policy if inflation threatens. This belief needs to be backed by actions. Such
was the case in the mid-1990s when the Fed tightened in response to an inflation scare.
Such a strategy can be greatly enhanced by good communication.

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The second policy goal is stability and growth of the real economy. Considerable
evidence suggests that low inflation is associated with better growth and overall
macroeconomic performance. Nevertheless, big shocks still occur, threatening to
derail the economy from its growth path. When such situations threaten, research also
suggests that the central bank should temporarily depart from its long-run inflation
goal and ease monetary policy to offset recessionary forces. Moreover, if market
agents believe in the long-run credibility of the central bank’s commitment to low
inflation, the cut in policy interest rates will not engender high inflation expectations.
Once the recession is avoided or has played its course, the central bank needs to raise
rates and return to its low-inflation goal.

The third policy goal is financial stability. Research has shown that it also will be
improved in an environment of low inflation, although some economists argue that
asset price booms are spawned in such an environment. In the case of an incipient
financial crisis such as that just witnessed in August 2007, the current view is that the
course of policy should be to provide whatever liquidity is required to allay the fears
of the money market. An open discount window and the acceptance of whatever
sound collateral is offered are seen as the correct prescription. Moreover, funds should
be offered at a penalty rate. The Fed followed these rules in September 2007, although
it is unclear whether the funds were provided at a penalty rate. Once the crisis is over,
which generally is in a matter of days or weeks, the central bank must remove the
excess liquidity and return to its inflation objective.

The Federal Reserve followed this strategy after Y2K. When no financial crisis
occurred, it promptly withdrew the massive infusion of liquidity it had provided. By
contrast, after providing funds following the attacks of 9/11 and the technology bust
of 2001, it permitted the additional funds to remain in the money market once the
threat of crisis was over. If the markets had not been infused with so much liquidity
for so long, interest rates would not have been as low in recent years as they have
been, and the housing boom might not have as expanded as much as it did.

A second challenge related to the first is for the central bank to keep abreast of
financial innovations, which can derail financial stability. Innovations in the financial
markets are a challenge to deal with, as they represent attempts to circumvent
regulation as well as to reduce transactions costs and enhance leverage. The recent
subprime crisis exemplifies the danger, as many problems were caused by derivatives
created to package mortgages of dubious quality with sounder ones so the instruments
could be unloaded off the balance sheets of commercial and investment banks. This
strategy, designed to dissipate risk, may have backfired because of the opacity of the
new instruments.

A third challenge facing the Federal Reserve in particular is whether to adopt an

explicit inflation targeting objective like the Bank of England, the Bank of Canada,
and other central banks. The advantages of doing so are that it simplifies policy and
makes it more transparent, which eases communication with the public and enhances
credibility. However, it might be difficult to combine an explicit target with the Fed’s
dual mandate of price stability and high employment.

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A fourth challenge for all central banks is to account for globalization and other
supply-side developments, such as political instability and oil price and other shocks,
which are outside of their control but which may affect global and domestic prices.

The final challenge I wish to mention concerns whether implicit or explicit inflation
targeting should be replaced with price-level targeting, whereby inflation would be
kept at zero percent. Research has shown that a price level may be the superior target,
because it avoids the problem of base drift (where inflation is allowed to cumulate),
and it also has less long-run price uncertainty. The disadvantage is that recessionary
shocks might cause a deflation, where the price level declines. This possibility should
not be a problem if the nominal anchor is credible, because the public would realize
that inflationary and deflationary episodes are transitory and prices will always revert
to their mean, that is, toward stability.

Such a strategy is not likely to be adopted in the near future because central banks are
concerned that deflation might get out of control or be associated with recession on
account of nominal rigidities. In addition, the transition would involve reducing
inflation expectations from the present plateau of about 2 percent, which would likely
involve deliberately engineering a recession—a policy not likely to ever be popular.
About the Bank
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on 3 July 1993 pursuant to the provisions of the 1987
Philippine Constitution and the New Central Bank Act of 1993. The BSP took over
from Central Bank of Philippines, which was established on 3 January 1949, as the
country’s central monetary authority. The BSP enjoys fiscal and administrative
autonomy from the National Government in the pursuit of its mandated
responsibilities.

Primer

Who We Are
Audited Financial Statements
Facilities
Acquired Properties for Sale
BSP Calendar

Who We Are
Mandate, Functions & Responsibilities

Monetary policy

The primary objective of BSP's monetary policy is to promote a low and stable
inflation conducive to a balanced and sustainable economic growth. The adoption of
inflation targeting framework for monetary policy in January 2002 is aimed at
achieving this objective.

Monetary Operations

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Monetary operations refer to the buying/selling of government securities,

lending/borrowing against underlying assets as collateral, acceptance of fixed-term
deposits, foreign exchange swaps, and the use of other monetary instruments of the
Bangko Sentral aimed at influencing the underlying demand and supply conditions for
central bank money.

Systemic Risk Management

The promotion of “Financial Stability” is a formal mandate that is uniquely ascribed

to the Bangko Sentral ng Pilipinas (BSP). This is provided for in the amended BSP
Charter (Republic Act No. 11211) which was signed by President Duterte in February
2019.

Financial Supervision

The Bangko Sentral has supervision over the operations of banks and exercises such
regulatory powers as provided in the New Central Bank Act and other pertinent laws
over the operations of finance companies and non-bank financial institutions
performing quasi-banking functions.

Payments and Settlements System Oversight

Payment systems are essential to the effective functioning of financial systems

worldwide. They provide the channels through which funds are transferred among
banks and other institutions to discharge payment obligations arising from economic
and financial transactions across the entire economy. An efficient, secure and reliable
payment system reduces the cost of exchanging goods and services, and it is an
essential tool for the effective implementation of monetary policy, and the smooth
functioning​ of money and capital markets. It is this key role played by payment and
settlement systems (PSS) in the smooth functioning of an economy in general and its
financial and monetary system in particular that gives the central bank (CB) a strong
incentive for ensuring that an effective, reliable and secure payment and settlement
system is in place.

Currency Management

The BSP has the exclusive power and authority to issue the national currency. BSP’s
notes and coins are issued against, and in amounts not exceeding, the assets of the
BSP. All notes and coins issued by the BSP are fully guaranteed by the government
and are considered legal tender for all private and public debts.

Inclusive Finance

In line with its strategic mandate to promote broad and convenient access to high
quality financial services and consider the interest of the general public, the BSP

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undertakes various programs and policy initiatives aimed at enhancing financial

inclusion, financial education, and consumer empowerment.

Loans and Credit Operations

The BSP extends discounts, loans and advances to banking institutions in order to
influence the volume of credit consistent with objective of price stability and
maintenance of financial stability. It also grants loans or advances to banking
institutions in precarious financial condition or under serious financial pressures,
subject to certain conditions.

International Reserves Management

The BSP maintains a healthy level of international reserves to provide liquidity

support in times of volatility in the exchange rate and balance of payments.

International Operations

The BSP’s mandate on international operations under the purview of the International
Operations Department is to support the promotion and maintenance of price stability,
external sustainability, and the integrity and value of the Philippine peso through the
effective management of external debt, foreign investments and other foreign
exchange (FX) transactions.

International Economic Cooperation

The BSP’s proactive engagement in various regional and international fora

significantly contributed to domestic policy formulation; assured partners through
established crisis prevention safety nets; broadened opportunities offered by financial
integration and cooperation agreements; and raised skills and knowledge through
capacity building initiatives.

Economic Education

The BSP’s Economic Education Portal provides the general public a guided access on
the BSP’s collection of information on economic education for them to better
understand and appreciate the role of the BSP, as the country’s central bank, in the
Philippine economy. As the portal strategically presents the BSP’s available learning
materials, it aims to develop and strengthen the public’s knowledge on economic
concepts that could eventually guide them in making sound economic and financial
decisions.

Investor Relations Group (IRG)

The Investor Relations Group (IRG) of the Bangko Sentral ng Pilipinas (BSP, the
Central Bank of the Philippines) was created in July 2001 to raise the Philippine

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government’s credit profile and promote the country as a viable investment

destination.

Now under BSP’s Strategic Communication and Advocacy, the core of IRG’s
mandate is to communicate before an international audience key messages on the
strengths of the Philippine economy, including sound macroeconomic fundamentals,
improved investment climate, game-changing policy reforms, and long-term
economic growth potential.

Strategic Communication Framework of the BSP

This document articulates a strategic communication framework for the Bangko
Sentral ng Pilipinas (BSP) that is stakeholder-centric, evidence-informed, and results-
oriented. While the concepts are not new, the SCF articulates the BSP's good
communication and engagement practices through the decades to serve as guide for
the conduct of these roles moving forward.

Vision, Mission and Core Values

Vision

English Version​

The BSP aims to be recognized globally as the monetary authority and primary
financial system supervisor that supports a strong economy and promotes a high
quality of life for all Filipinos.

Filipino Version​

Naghahangad ang BSP na makilala sa buong mundo bilang pangunahing

tagapamahala ng sistema at kaayusan ng pananalapi at ekonomiya upang maitaguyod
ang mataas na antas ng kabuhayan para sa lahat ng Filipino.​

Mission

English Version​

To promote and maintain price stability, a strong financial system, and a safe and
efficient payments and settlements system conducive to a sustainable and inclusive
growth of the economy.

Filipino Version

Itaguyod at panatilihin ang katatagan ng presyo ng mga bilihin at ng sistemang

pinansyal, at ng mahusay, lig​ tas at maaasahang pamamaraan ng pagbabayad upang
makatulong sa patuloy na paglago ng ekonomiya at pag-angat ng kabuhayan ng lahat
ng mga Filipino.

Core Values

Organization and Governance

Organizational Structure

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Governance of the Bank

The Monetary Board exercises the powers and functions of the BSP, such as the
conduct of monetary policy and supervision of the financial system. Its chairman is
the BSP Governor, with five full-time members from the private sector and one
member from the Cabinet. The Governor is the chie​ f executive officer of the BSP
and is required to direct and supervise the operations and internal administration of
the BSP.

Seal, Charter & History

BSP Seal

BSP Charter

History of the Bank

Audited Financial Statements

The Management of the Bangko Sentral ng Pilipinas (BSP) is responsible for the
preparation and fair presentation of the financial statements in accordance with
Republic Act No. 7653 (the New Central Bank Act) and applicable Philippine
Financial Reporting Standards and Philippine Accounting Standards as aligned with
the International Financial Reporting Standards and International Accounting
Standards, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.

Facilities
BSP Museum

Within the complex of the Bangko Sentral ng Pilipinas, the nation's central monetary
authority, resides a numismatist's haven - the Museo ng Bangko Sentral ng Pilipinas.
Inaugurated on January 3, 1999, as part of the celebration of the 50 years of central
banking in the Philippines, the Museo showcases the Bank's collection of
currencies.​

KYM Briefing

The Payments and Currency Management Sector (PCMS) regularly conducts two (2)
Know Your Money (KYM) Programs with gallery tour of the various phases of
printing banknotes and security documents.

Acquired Properties For Sale​ ​

BSP-acquired properties are available for sale initially through public auction, and in
case of unsuccessful bidding, are offered for negotiable sale. The sale of BSP-
acquired properties shall be on an "As is, Where is" basis and the buyer shall
undertake the responsibility to acquire and maintain peaceful possession and
enjoyment of the property at his expense​ ​ .

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CENTRAL BANKING AND ITS MONETARY POLICIES

The Bangko Sentral ng Pilipinas (lit. 'Central Bank of the Philippines'; commonly
abbreviated as BSP in both Filipino and English) is the central bank of the Philippines.
It was established on January 3, 1949, and then re-established on July 3, 1993
pursuant to the provision of Republic Act 7653 or the New Central Bank Act of
1993[2] as amended by Republic Act 11211 or the New Central Bank Act of 2019.[3]
The principal author was Senator Franklin Drilon. It was signed by President Rodrigo
Duterte.[4]

History
American era and World War II

This section needs additional citations for verification. Please help improve this article
by adding citations to reliable sources in this section. Unsourced material may be
challenged and removed.
Find sources: "Bangko Sentral ng Pilipinas" –
news · newspapers · books · scholar · JSTOR (December 2017) (Learn how and when
to remove this message)
In 1900, the First Philippine Commission passed Act No. 52,[5][6] which placed all
banks under the Bureau of the Treasury and authorizing the Insular Treasurer to
supervise and examine banks and all banking activity. In 1929, the Department of
Finance, through the Bureau of Banking, took over bank supervision.

BSP Complex in Manila still bearing the old logo, January 2021
By 1933, a group of Filipinos had conceptualized a central bank for the Philippine
Islands.[7] It came up with the rudiments of a bill for the establishment of a central
bank after a careful study of the economic provisions of the Hare–Hawes–Cutting Act,
which would grant Philippine independence after 12 years, but reserving military and
naval bases for the United States and imposing tariffs and quotas on Philippine
exports. However, the Hare–Hawes–Cutting Act would be rejected by the Senate of
the Philippines at the urging of Commonwealth President Manuel L. Quezon. This
Senate then advocated a new bill that won United States President Franklin D.
Roosevelt's support, this would be the Tydings–McDuffie Act, which would grant
Philippine independence on July 4, 1946.

Under the Commonwealth, discussions continued regarding the idea of a Philippine

central bank that would promote price stability and economic growth. The country's
monetary system then was administered by the Department of Finance and the
National Treasury, and the Philippine piso was on the exchange standard using the
United States dollar, which was backed by 100 percent gold reserve, as the standard
currency.

As required by the Tydings–McDuffie Act, the National Assembly of the Philippines

in 1939 passed a law establishing a central bank. As it was a monetary law, it required
the approval of the President of the United States; Franklin D. Roosevelt did not give
his. A second law was passed in 1944 under the Japanese-controlled Second Republic
during the Second World War, but the 1945 arrival of American liberation forces,
aided by Philippine Commonwealth troops and recognised guerrillas, aborted its
implementation.

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CENTRAL BANKING AND ITS MONETARY POLICIES

Third Republic and martial law

Shortly after President Manuel Roxas assumed office in 1946, he instructed then-
Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank.[8]
The establishment of a monetary authority became imperative a year later as a result
of the findings of the Joint Philippine-American Finance Commission chaired by
Cuaderno. The commission, which studied Philippine financial, monetary, and fiscal
problems in 1947, recommended a shift from the dollar exchange standard to a
managed currency system. A central bank was needed to implement this proposed
shift.

Roxas then created the Central Bank Council to prepare the charter of a proposed
monetary authority. It was submitted to Congress in February 1948. The Central Bank
Act authored by then Congressman José J. Roy was signed into law in June of the
same year [9] by the newly proclaimed President Elpidio Quirino, who succeeded the
late President Roxas, affixing his signature on Republic Act (RA) No. 265 or the
Central Bank Act of 1948.[10] On January 3, 1949, the Central Bank of the
Philippines was formally inaugurated with Cuaderno as the first governor.[11] The
main duties and responsibilities of the Central Bank were to promote economic
development and maintain internal and external monetary stability.[12]

Over the years, changes were introduced to make the charter more responsive to the
needs of the economy. On November 29, 1972, President Ferdinand Marcos'
Presidential Decree No. 72[13] amended Republic Act No. 265, emphasizing the
maintenance of domestic and international monetary stability as the primary objective
of the Central Bank. The Bank's authority was also expanded to include regulation of
the nation's entire financial system just supervision of the banking system. In 1981,
RA 265, as amended, was further improved to strengthen the financial system,[10]
among the changes was the increase in the capitalization of the Central Bank from
₱10 million to ₱10 billion.[13]

In the 1973 Constitution, the interim Batasang Pambansa (National Assembly) was
mandated to establish an independent central monetary authority. Presidential Decree
No. 1801 designated the Central Bank of the Philippines as the central monetary
authority (CMA).[14] According to a confidential October 19, 1984 Monetary Board
report, the Central bank overstated the country's dollar reserves at $600 million.[15]

Following the overthrow of President Marcos, the 1987 Constitution adopted the
CMA provisions from the 1973 Constitution that were aimed at establishing an
independent monetary authority through increased capitalization and greater private
sector representation in the Monetary Board.[14]

Present
In accordance with a provision in the 1987 Constitution, President Fidel V. Ramos
signed Republic Act No. 7653, otherwise known as The New Central Bank Act,[2]
into law on June 14, 1993.[16][17] Taking on the reins of the then bankrupted
entity,[18][19] this new law provides for the establishment of an independent
monetary authority to be known as the "Bangko Sentral ng Pilipinas", its primary
objective being the maintenance of price stability. This objective was only implied in
the old Central Bank charter. The law also gives the Bangko Sentral fiscal and

16
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CENTRAL BANKING AND ITS MONETARY POLICIES

administrative autonomy which the old Central Bank did not have. On July 3, 1993,
the New Central Bank Act took effect.[2]

BSP Branch in Zamboanga City.

On the evening of September 26, 2012, a Wednesday, the BSP website was hacked by
a group named Anonymous Philippines in a protest against the recently passed
Cybercrime Prevention Act of 2012.[20][21] The website was promptly restored in
the early hours of the following day.[22]

On April 23, 2013, The Asian Banker named the BSP as the Best Macroeconomic
Regulator in the Asia-Pacific Region for 2013 in The Asian Banker Leadership
Achievement Awards in Jakarta, Indonesia.[23][24] The BSP was cited as a "good,
strong, and fair-minded regulator." About a month later, the BSP was given the
country award by the Child and Youth Finance International in its 2013 International
Summit in Istanbul, Turkey, in recognition of its initiative to integrate financial
literacy education into the Philippine elementary school curriculum.[25] In 2019,
President Rodrigo Duterte signed R.A. 11211, further increasing the Bank's
capitalization to ₱200 billion.[26][3]

Project Nexus
The Bank for International Settlements signed an agreement with Central Bank of
Malaysia, Bank of Thailand, Bangko Sentral ng Pilipinas, Monetary Authority of
Singapore, and the Reserve Bank of India on 30 June 2024 as founding member of
Project Nexus, a multilateral international initiative to enable retail cross-border
payments. Bank Indonesia involved as a special observer. The platform, which is
expected to go live by 2026, will interlink domestic fast payment systems of the
member countries.[27]

Roles and responsibilities

As prescribed by the New Central Bank Act,[28] the main functions of the Bangko
Sentral are:

Liquidity management, by formulating and implementing monetary policy aimed at

influencing money supply, consistent with its primary objective to maintain price
stability,
Currency issue. The BSP has the exclusive power to issue the national currency. All
notes and coins issued by the BSP are fully guaranteed by the Government and are
considered legal tender for all private and public debts,
Lender of last resort, by extending discounts, loans and advances to banking
institutions for liquidity purposes,
Financial supervision, by supervising banks and exercising regulatory powers over
non-bank institutions performing quasi-banking functions,
Management of foreign currency reserves, by maintaining sufficient international
reserves to meet any foreseeable net demands for foreign currencies in order to
preserve the international stability and convertibility of the Philippine peso,
Determination of exchange rate policy, by determining the exchange rate policy of the
Philippines. Currently, the BSP adheres to a market-oriented foreign exchange rate
policy, and

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CENTRAL BANKING AND ITS MONETARY POLICIES

Being the banker, financial advisor and official depository of the Government, its
political subdivisions and instrumentalities and GOCCs.
Organization
The basic structure[29] of the Bangko Sentral includes:

The Monetary Board, which exercises the powers and functions of the BSP, such as
the conduct of monetary policy and supervision of the financial system;
The Monetary and Economics Sector, which takes charge of the formulation and
implementation of the BSP's monetary policy, including serving the banking needs of
all banks through accepting deposits, servicing withdrawals and extending credit
through the rediscounting facility;
The Financial Supervision Sector, which enforces and monitors compliance to
banking laws to promote a sound and healthy banking system;
The Payments and Currency Management Sector, which maintains the safety and
integrity of the Philippine currency and ensuring a well-functioning payments and
cash ecosystem;
The Corporate Services Sector, which serves the human, financial and physical
resource needs of the BSP; and
The Regional Operations and Advocacy Sector, which manages activities related to
regional operations, consumer empowerment and advocacy, and communications.[30]
The powers and function of Bangko Sentral are exercised by its Monetary Board,
whose seven members are appointed by the President of the Philippines. As provided
for by RA 7653 or the New Central Bank Act, one of the government sector members
of the Monetary Board must also be a member of Cabinet. Members of the Monetary
Board are prohibited from holding certain positions in other government agencies and
private institutions that may give rise to conflicts of interest. The members have fixed
and overlapping terms, except for the Cabinet Secretary representing the incumbent
administration.[31]

The current members[30] of the Monetary Board are:

Eli M. Remolona, Jr. – BSP Governor and Chairman of the Monetary Board
Francisco G. Dakila, Jr. – Deputy Governor for Monetary and Economics Sector
Chuchi G. Fonacier – Deputy Governor for Financial Supervision Sector
Mamerto E. Tangonan – Deputy Governor for Payments and Currency Management
Sector
Eduardo G. Bobier – Deputy Governor for Corporate Services Sector
Bernadette Romulo-Puyat – Deputy Governor for Regional Operations and Advocacy
Sector
Ralph Recto - Secretary of the Department of Finance
Benjamin Diokno - Monetary Board Member
Rosalia V. De Leon - Monetary Board Member, former National Treasurer
Romeo L. Bernardo - Monetary Board Member, former undersecretary of the
Department of Finance
Walter C. Wassmer - Monetary Board Member
Jose Querubin - Monetary Board Member[32]
Convertible currencies
The Bangko Sentral has 32 currencies directly convertible with the Philippine
peso,[33] which serves as a benchmark for all Philippine banks.

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Convertible currencies with Bangko Sentral:

Australia Australian dollar (AUD)

Bahrain Bahraini dinar (BHD)
United Kingdom British pound (GBP)
Brunei Brunei dollar (BND)
Canada Canadian dollar (CAD)
China Chinese yuan (CNY)
Europe Euro (EUR)
Hong Kong Hong Kong dollar (HKD)
Indonesia Indonesian rupiah (IDR)
Japan Japanese yen (JPY)
South Korea South Korean won (KRW)
Kuwait Kuwaiti dinar (KWD)
Saudi Arabia Saudi riyal (SAR)
Singapore Singapore dollar (SGD)
Switzerland Swiss franc (CHF)
Thailand Thai baht (THB)
United Arab Emirates United Arab Emirates dirham (AED)
United States United States dollar (USD)
Others (Not Convertible With BSP):

Argentina Argentina Peso (ARS)

Brazil Brazil Real (BRL)
Denmark Denmark Kroner (DKK)
India India Rupee (INR)
Malaysia Malaysia Ringgit (MYR)
Mexico Mexico New Peso (MXN)
New Zealand New Zealand Dollar (NZD)
Norway Norway Kroner (NOK)
Pakistan Pakistan Rupee (PKR)
South Africa South Africa Rand (ZAR)
Sweden Sweden Kroner (SEK)
Syria Syria Pound (SYP)
Taiwan Taiwan NT Dollar (TWD)
Venezuela Venezuela Bolivar (VEB)
Microfinance and financial inclusion
In 2000, the General Banking Law[34] mandated the BSP to recognize microfinance
as a legitimate banking activity and to set the rules and regulations for its practice
within the banking sector. In the same year, the BSP declared microfinance as its
flagship program for poverty alleviation. The BSP has become the prime advocate for
the development of microfinance. To this end, the Bangko Sentral aims to:

Provide the enabling policy and regulatory environment;

Increase the capacity of the BSP and banking sector on microfinance operations; and
Promote and advocate for the development of sound and sustainable microfinance
operations.
The Bank is active in promoting a financial inclusion policy and is a leading member
of the Alliance for Financial Inclusion.[35] It is also one of the original 17 regulatory

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CENTRAL BANKING AND ITS MONETARY POLICIES

institutions to make specific national commitments to financial inclusion under the

Maya Declaration[36] during the 2011 Global Policy Forum held in Mexico.

Anti-money laundering
With money laundering being one of the problems of the Philippines,[37] the BSP has
issued a number of measures to bring the Philippines' regulatory regime on money
laundering closer to international standards. In September 2001, the Anti-Money
Laundering Act, or AMLA, was made into law.[38][39] The AMLA defined money
laundering a criminal offense, and prescribed corresponding penalties. It also
provided the foundation for a central monitoring and implementing council called the
Anti-Money Laundering Council (AMLC). The AMLC is composed of the Governor
of the Bangko Sentral as chair, and the Commissioner of the Insurance Commission
and the Chairman of the Securities and Exchange Commission as members, all acting
unanimously in the discharge of the group's mandate.[40]

In February 2013, Philippine President Benigno Aquino III signed "Republic Act No.
10365" known as An Act Further Strengthening the Anti-Money Laundering Law,[41]
which aims to strengthen the AMLC by requiring that any suspicious transaction in
foreign exchange, real estate, and jewelry and precious metal trading be reported.[42]

Governors
Main article: Governor of the Bangko Sentral ng Pilipinas
Logo

Logo used since June 18, 2010 (concurrently with the 1993 from June 18, 2010 to
August 2, 2019 and 2020 logos since November 20, 2020) that is still used in
Philippine peso banknotes and coinage in circulation since December 16, 2010 and
November 30, 2017, respectively. It was used on New Generation Currency
banknotes printed from December 16, 2010 to December 2022 and coins minted from
November 30, 2017 until the said month of 2022, and on its headquarters in Manila
and Security Plant Complex in Quezon City from 2012 to 2022.
The 2020 logo of Bangko Sentral ng Pilipinas was first adopted as the central bank's
primary logo in November 20, 2020 with the design receiving endorsement by the
National Historical Commission of the Philippines (NHCP).[43] The circular symbol
features a full-bodied gold-colored Philippine eagle based on actual photographs of
the bird and three stars.[44]

The logo featuring a blue and white logo and a more stylized rendition of the eagle,
used since June 18, 2010 (concurrently with the 1993 from June 18, 2010 until the
demonetization of commemorative banknotes under the New Design Series on August
2, 2019 and 2020 logos since November 20, 2020), is still currently used in banknotes
and coinage in circulation since December 16, 2010 and November 30, 2017,
respectively. It was used on New Generation Currency banknotes printed from
December 16, 2010 to December 2022 and coins minted from November 30, 2017
until the said month of 2022, and on its headquarters in Manila and Security Plant
Complex in Quezon City from 2012 to 2022.[45][44]

Museum
Within the main Manila complex of the BSP is the Museo ng Bangko Sentral ng
Pilipinas (English: Museum of the Bangko Sentral ng Pilipinas). Inaugurated on

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CENTRAL BANKING AND ITS MONETARY POLICIES

January 3, 1999, as part of the golden jubilee of central banking in the country, the
Museo showcases the BSP's collection of currencies.[46]

As repository and custodian of the country's numismatic heritage, the Museo collects,
studies and preserves coins, paper notes, medals, artifacts and monetary items found
in the Philippines during its different historical periods. These collections have been
placed on permanent display at the Museo. Designed to "walk" the visitor through a
number of galleries dedicated to a specific historical period of the country, the Museo
visually narrates the development of the Philippine economy, parallel to the evolution
of its currency.[47] Complementary paintings from the BSP's art collection,[48][49]
together with chosen artifacts, enhance each gallery.

A panoramic memorabilia of central banking in the Philippines, it showcases the

strides made in bringing about price stability to sustain economic growth in the
country. The exhibition hall also features portrait busts of previous governors.

Security Plant Complex

Security Plant Complex in Quezon City.

The Security Plant Complex, or SPC, was formally established on September 7, 1978,
to safeguard the printing, minting, refining, issuance, distribution and durability of
coins, banknotes, gold bars, government official receipts, lottery tickets, internal
revenue stamps, passports, seaman identification record books, strip stamps, official
documents, registration certificates, Torrens titles, treasury warrants, stocks and bonds,
government contracts, ration coupons, official ballots, election return forms, checks
and other security printing or minting jobs of the Philippine government.

Printing of official ballots and other public documents was later transferred to the
National Printing Office pursuant to Executive Order No. 285[50] issued on July 25,
1987.[51]

On August 4, 2003, President Gloria Macapagal Arroyo issued "Administrative Order

No. 79",[52] which designated the SPC as the sole producer of insignia of national
orders, decorations, and medals.[53]

The BSP will relocate its security plant complex from East Avenue, Quezon City to
the National Government Administrative Center district of New Clark City in Capas,
Tarlac after it signed a memorandum of agreement with the Bases Conversion and
Development Authority in September 2019. The new currency production facility will
be located on a 29-hectare (72-acre) plot near the access road connecting New Clark
City in Pampanga to the Subic–Clark–Tarlac Expressway and it is expected to be
completed within two years.[54]The Bangko Sentral ng Pilipinas (lit. 'Central Bank
of the Philippines'; commonly abbreviated as BSP in both Filipino and English) is the
central bank of the Philippines. It was established on January 3, 1949, and then re-
established on July 3, 1993 pursuant to the provision of Republic Act 7653 or the
New Central Bank Act of 1993[2] as amended by Republic Act 11211 or the New
Central Bank Act of 2019.[3] The principal author was Senator Franklin Drilon. It was
signed by President Rodrigo Duterte.[4]
History[edit]
American era and World War II[edit]

21
 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES

This section needs additional

citations for verification. Please
help improve this article by adding
citations to reliable sources in this
section. Unsourced material may be
challenged and removed.
Find sources: "Bangko Sentral ng
Pilipinas" – news · newspapers ·
books · scholar · JSTOR (December
2017) (Learn how and when to
remove this message)
In 1900, the First Philippine Commission passed Act No. 52,[5][6] which placed all
banks under the Bureau of the Treasury and authorizing the Insular Treasurer to
supervise and examine banks and all banking activity. In 1929, the Department of
Finance, through the Bureau of Banking, took over bank supervision.

BSP Complex in Manila still bearing the old logo, January 2021

By 1933, a group of Filipinos had conceptualized a central bank for the Philippine
Islands.[7] It came up with the rudiments of a bill for the establishment of a central
bank after a careful study of the economic provisions of the Hare–Hawes–Cutting Act,
which would grant Philippine independence after 12 years, but reserving military and
naval bases for the United States and imposing tariffs and quotas on Philippine
exports. However, the Hare–Hawes–Cutting Act would be rejected by the Senate of
the Philippines at the urging of Commonwealth President Manuel L. Quezon. This
Senate then advocated a new bill that won United States President Franklin D.
Roosevelt's support, this would be the Tydings–McDuffie Act, which would grant
Philippine independence on July 4, 1946.
Under the Commonwealth, discussions continued regarding the idea of a Philippine
central bank that would promote price stability and economic growth. The country's
monetary system then was administered by the Department of Finance and the
National Treasury, and the Philippine piso was on the exchange standard using the
United States dollar, which was backed by 100 percent gold reserve, as the standard
currency.
As required by the Tydings–McDuffie Act, the National Assembly of the Philippines
in 1939 passed a law establishing a central bank. As it was a monetary law, it required
the approval of the President of the United States; Franklin D. Roosevelt did not give
his. A second law was passed in 1944 under the Japanese-controlled Second Republic
during the Second World War, but the 1945 arrival of American liberation forces,

22
 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES

aided by Philippine Commonwealth troops and recognised guerrillas, aborted its

implementation.
Third Republic and martial law[edit]
Shortly after President Manuel Roxas assumed office in 1946, he instructed then-
Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank.[8] The
establishment of a monetary authority became imperative a year later as a result of the
findings of the Joint Philippine-American Finance Commission chaired by Cuaderno.
The commission, which studied Philippine financial, monetary, and fiscal problems in
1947, recommended a shift from the dollar exchange standard to a managed currency
system. A central bank was needed to implement this proposed shift.
Roxas then created the Central Bank Council to prepare the charter of a proposed
monetary authority. It was submitted to Congress in February 1948. The Central Bank
Act authored by then Congressman José J. Roy was signed into law in June of the
same year [9] by the newly proclaimed President Elpidio Quirino, who succeeded the
late President Roxas, affixing his signature on Republic Act (RA) No. 265 or the
Central Bank Act of 1948.[10] On January 3, 1949, the Central Bank of the Philippines
was formally inaugurated with Cuaderno as the first governor.[11] The main duties and
responsibilities of the Central Bank were to promote economic development and
maintain internal and external monetary stability.[12]
Over the years, changes were introduced to make the charter more responsive to the
needs of the economy. On November 29, 1972, President Ferdinand Marcos'
Presidential Decree No. 72[13] amended Republic Act No. 265, emphasizing the
maintenance of domestic and international monetary stability as the primary objective
of the Central Bank. The Bank's authority was also expanded to include regulation of
the nation's entire financial system just supervision of the banking system. In 1981,
RA 265, as amended, was further improved to strengthen the financial system,[10]
among the changes was the increase in the capitalization of the Central Bank from
₱10 million to ₱10 billion.[13]
In the 1973 Constitution, the interim Batasang Pambansa (National Assembly) was
mandated to establish an independent central monetary authority. Presidential Decree
No. 1801 designated the Central Bank of the Philippines as the central monetary
authority (CMA).[14] According to a confidential October 19, 1984 Monetary Board
report, the Central bank overstated the country's dollar reserves at $600 million.[15]
Following the overthrow of President Marcos, the 1987 Constitution adopted the
CMA provisions from the 1973 Constitution that were aimed at establishing an
independent monetary authority through increased capitalization and greater private
sector representation in the Monetary Board.[14]
Present[edit]
In accordance with a provision in the 1987 Constitution, President Fidel V. Ramos
signed Republic Act No. 7653, otherwise known as The New Central Bank Act,[2] into
law on June 14, 1993.[16][17] Taking on the reins of the then bankrupted entity,[18][19]
this new law provides for the establishment of an independent monetary authority to
be known as the "Bangko Sentral ng Pilipinas", its primary objective being the
maintenance of price stability. This objective was only implied in the old Central
Bank charter. The law also gives the Bangko Sentral fiscal and administrative
autonomy which the old Central Bank did not have. On July 3, 1993, the New Central
Bank Act took effect.[2]

23
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CENTRAL BANKING AND ITS MONETARY POLICIES

BSP Branch in Zamboanga City.

On the evening of September 26, 2012, a Wednesday, the BSP website was hacked by
a group named Anonymous Philippines in a protest against the recently passed
Cybercrime Prevention Act of 2012.[20][21] The website was promptly restored in the
early hours of the following day.[22]
On April 23, 2013, The Asian Banker named the BSP as the Best Macroeconomic
Regulator in the Asia-Pacific Region for 2013 in The Asian Banker Leadership
Achievement Awards in Jakarta, Indonesia.[23][24] The BSP was cited as a "good, strong,
and fair-minded regulator." About a month later, the BSP was given the country
award by the Child and Youth Finance International in its 2013 International Summit
in Istanbul, Turkey, in recognition of its initiative to integrate financial literacy
education into the Philippine elementary school curriculum.[25] In 2019, President
Rodrigo Duterte signed R.A. 11211, further increasing the Bank's capitalization to
₱200 billion.[26][3]
Project Nexus[edit]
The Bank for International Settlements signed an agreement with Central Bank of
Malaysia, Bank of Thailand, Bangko Sentral ng Pilipinas, Monetary Authority of
Singapore, and the Reserve Bank of India on 30 June 2024 as founding member of
Project Nexus, a multilateral international initiative to enable retail cross-border
payments. Bank Indonesia involved as a special observer. The platform, which is
expected to go live by 2026, will interlink domestic fast payment systems of the
member countries.[27]
Roles and responsibilities[edit]
As prescribed by the New Central Bank Act,[28] the main functions of the Bangko
Sentral are:

1.

Liquidity management, by formulating and implementing monetary policy

aimed at influencing money supply, consistent with its primary objective to
maintain price stability,

2.
3.

Currency issue. The BSP has the exclusive power to issue the national
currency. All notes and coins issued by the BSP are fully guaranteed by the
Government and are considered legal tender for all private and public debts,

4.

24
 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES

5.

Lender of last resort, by extending discounts, loans and advances to banking

institutions for liquidity purposes,

6.
7.

Financial supervision, by supervising banks and exercising regulatory

powers over non-bank institutions performing quasi-banking functions,

8.
9.

Management of foreign currency reserves, by maintaining sufficient

international reserves to meet any foreseeable net demands for foreign
currencies in order to preserve the international stability and convertibility of
the Philippine peso,

10.
11.

Determination of exchange rate policy, by determining the exchange rate

policy of the Philippines. Currently, the BSP adheres to a market-oriented
foreign exchange rate policy, and

12.
13.

Being the banker, financial advisor and official depository of the Government,
its political subdivisions and instrumentalities and GOCCs.

14.

Organization[edit]
The basic structure[29] of the Bangko Sentral includes:

The Monetary Board, which exercises the powers and functions of the BSP,
such as the conduct of monetary policy and supervision of the financial system;




The Monetary and Economics Sector, which takes charge of the formulation
and implementation of the BSP's monetary policy, including serving the
banking needs of all banks through accepting deposits, servicing withdrawals
and extending credit through the rediscounting facility;

25
 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES




The Financial Supervision Sector, which enforces and monitors compliance

to banking laws to promote a sound and healthy banking system;




The Payments and Currency Management Sector, which maintains the

safety and integrity of the Philippine currency and ensuring a well-functioning
payments and cash ecosystem;




The Corporate Services Sector, which serves the human, financial and
physical resource needs of the BSP; and




The Regional Operations and Advocacy Sector, which manages activities

related to regional operations, consumer empowerment and advocacy, and
communications.[30]

The powers and function of Bangko Sentral are exercised by its Monetary Board,
whose seven members are appointed by the President of the Philippines. As provided
for by RA 7653 or the New Central Bank Act, one of the government sector members
of the Monetary Board must also be a member of Cabinet. Members of the Monetary
Board are prohibited from holding certain positions in other government agencies and
private institutions that may give rise to conflicts of interest. The members have fixed
and overlapping terms, except for the Cabinet Secretary representing the incumbent
administration.[31]
The current members[30] of the Monetary Board are:

Eli M. Remolona, Jr. – BSP Governor and Chairman of the Monetary Board

Francisco G. Dakila, Jr. – Deputy Governor for Monetary and

Economics Sector

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 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES

Chuchi G. Fonacier – Deputy Governor for Financial Supervision

Sector




Mamerto E. Tangonan – Deputy Governor for Payments and Currency

Management Sector




Eduardo G. Bobier – Deputy Governor for Corporate Services Sector




Bernadette Romulo-Puyat – Deputy Governor for Regional Operations

and Advocacy Sector

Ralph Recto - Secretary of the Department of Finance




Benjamin Diokno - Monetary Board Member




Rosalia V. De Leon - Monetary Board Member, former National Treasurer




Romeo L. Bernardo - Monetary Board Member, former undersecretary of the

Department of Finance




Walter C. Wassmer - Monetary Board Member

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Jose Querubin - Monetary Board Member[32]

Convertible currencies[edit]
The Bangko Sentral has 32 currencies directly convertible with the Philippine peso,[33]
which serves as a benchmark for all Philippine banks.
Convertible currencies with Bangko Sentral:

Australian dollar (AUD)




Bahraini dinar (BHD)




British pound (GBP)




Brunei dollar (BND)




Canadian dollar (CAD)




Chinese yuan (CNY)




Euro (EUR)




Hong Kong dollar (HKD)

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


Indonesian rupiah (IDR)




Japanese yen (JPY)




South Korean won (KRW)




Kuwaiti dinar (KWD)




Saudi riyal (SAR)




Singapore dollar (SGD)




Swiss franc (CHF)




Thai baht (THB)




United Arab Emirates dirham (AED)




United States dollar (USD)

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Others (Not Convertible With BSP):

Argentina Peso (ARS)




Brazil Real (BRL)




Denmark Kroner (DKK)




India Rupee (INR)




Malaysia Ringgit (MYR)




Mexico New Peso (MXN)




New Zealand Dollar (NZD)




Norway Kroner (NOK)




Pakistan Rupee (PKR)

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South Africa Rand (ZAR)




Sweden Kroner (SEK)




Syria Pound (SYP)




Taiwan NT Dollar (TWD)




Venezuela Bolivar (VEB)

Microfinance and financial inclusion[edit]

In 2000, the General Banking Law[34] mandated the BSP to recognize microfinance as
a legitimate banking activity and to set the rules and regulations for its practice within
the banking sector. In the same year, the BSP declared microfinance as its flagship
program for poverty alleviation. The BSP has become the prime advocate for the
development of microfinance. To this end, the Bangko Sentral aims to:

1.

Provide the enabling policy and regulatory environment;

2.
3.

Increase the capacity of the BSP and banking sector on microfinance

operations; and

4.
5.

Promote and advocate for the development of sound and sustainable

microfinance operations.

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6.

The Bank is active in promoting a financial inclusion policy and is a leading member
of the Alliance for Financial Inclusion.[35] It is also one of the original 17 regulatory
institutions to make specific national commitments to financial inclusion under the
Maya Declaration[36] during the 2011 Global Policy Forum held in Mexico.
Anti-money laundering[edit]
With money laundering being one of the problems of the Philippines,[37] the BSP has
issued a number of measures to bring the Philippines' regulatory regime on money
laundering closer to international standards. In September 2001, the Anti-Money
Laundering Act, or AMLA, was made into law.[38][39] The AMLA defined money
laundering a criminal offense, and prescribed corresponding penalties. It also
provided the foundation for a central monitoring and implementing council called the
Anti-Money Laundering Council (AMLC). The AMLC is composed of the Governor
of the Bangko Sentral as chair, and the Commissioner of the Insurance Commission
and the Chairman of the Securities and Exchange Commission as members, all acting
unanimously in the discharge of the group's mandate.[40]
In February 2013, Philippine President Benigno Aquino III signed "Republic Act No.
10365" known as An Act Further Strengthening the Anti-Money Laundering Law,[41]
which aims to strengthen the AMLC by requiring that any suspicious transaction in
foreign exchange, real estate, and jewelry and precious metal trading be reported.[42]
Governors[edit]
Main article: Governor of the Bangko Sentral ng Pilipinas
Logo[edit]

Logo used since June 18, 2010 (concurrently with the 1993 from June 18, 2010 to
August 2, 2019 and 2020 logos since November 20, 2020) that is still used in
Philippine peso banknotes and coinage in circulation since December 16, 2010 and
November 30, 2017, respectively. It was used on New Generation Currency
banknotes printed from December 16, 2010 to December 2022 and coins minted
from November 30, 2017 until the said month of 2022, and on its headquarters in
Manila and Security Plant Complex in Quezon City from 2012 to 2022.

The 2020 logo of Bangko Sentral ng Pilipinas was first adopted as the central bank's
primary logo in November 20, 2020 with the design receiving endorsement by the
National Historical Commission of the Philippines (NHCP).[43] The circular symbol
features a full-bodied gold-colored Philippine eagle based on actual photographs of
the bird and three stars.[44]

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The logo featuring a blue and white logo and a more stylized rendition of the eagle,
used since June 18, 2010 (concurrently with the 1993 from June 18, 2010 until the
demonetization of commemorative banknotes under the New Design Series on August
2, 2019 and 2020 logos since November 20, 2020), is still currently used in banknotes
and coinage in circulation since December 16, 2010 and November 30, 2017,
respectively. It was used on New Generation Currency banknotes printed from
December 16, 2010 to December 2022 and coins minted from November 30, 2017
until the said month of 2022, and on its headquarters in Manila and Security Plant
Complex in Quezon City from 2012 to 2022.[45][44]
Museum[edit]
Within the main Manila complex of the BSP is the Museo ng Bangko Sentral ng
Pilipinas (English: Museum of the Bangko Sentral ng Pilipinas). Inaugurated on
January 3, 1999, as part of the golden jubilee of central banking in the country, the
Museo showcases the BSP's collection of currencies.[46]
As repository and custodian of the country's numismatic heritage, the Museo collects,
studies and preserves coins, paper notes, medals, artifacts and monetary items found
in the Philippines during its different historical periods. These collections have been
placed on permanent display at the Museo. Designed to "walk" the visitor through a
number of galleries dedicated to a specific historical period of the country, the Museo
visually narrates the development of the Philippine economy, parallel to the evolution
of its currency.[47] Complementary paintings from the BSP's art collection,[48][49]
together with chosen artifacts, enhance each gallery.
A panoramic memorabilia of central banking in the Philippines, it showcases the
strides made in bringing about price stability to sustain economic growth in the
country. The exhibition hall also features portrait busts of previous governors.
Security Plant Complex[edit]

Security Plant Complex in Quezon City.

The Security Plant Complex, or SPC, was formally established on September 7, 1978,
to safeguard the printing, minting, refining, issuance, distribution and durability of
coins, banknotes, gold bars, government official receipts, lottery tickets, internal
revenue stamps, passports, seaman identification record books, strip stamps, official
documents, registration certificates, Torrens titles, treasury warrants, stocks and bonds,
government contracts, ration coupons, official ballots, election return forms, checks
and other security printing or minting jobs of the Philippine government.
Printing of official ballots and other public documents was later transferred to the
National Printing Office pursuant to Executive Order No. 285[50] issued on July 25,
1987.[51]

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On August 4, 2003, President Gloria Macapagal Arroyo issued "Administrative Order

No. 79",[52] which designated the SPC as the sole producer of insignia of national
orders, decorations, and medals.[53]
The BSP will relocate its security plant complex from East Avenue, Quezon City to
the National Government Administrative Center district of New Clark City in Capas,
Tarlac after it signed a memorandum of agreement with the Bases Conversion and
Development Authority in September 2019. The new currency production facility will
be located on a 29-hectare (72-acre) plot near the access road connecting New Clark
City in Pampanga to the Subic–Clark–Tarlac Expressway and it is expected to be
completed within two years.[54]

Bangko Sentral ng Pilipinas

Featured Partner Institution

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on July 3, 1993 pursuant to the provisions of the 1987
Philippine Constitution and the New Central Bank Act of 1993. It has since then
functioned as the country’s central monetary authority that enjoys fiscal and
administrative autonomy from the national government.

Under the New Central Bank Act, the BSP performs functions such as liquidity
management, currency issue, lender of last resort, financial supervision, management
of foreign currency reserves, and determination of exchange rate policy. It also acts as
the banker, financial advisor, and official depository of the government, its political
subdivisions and instrumentalities, and government-owned and -controlled
corporations.

Currently, the BSP provides policy directions in the areas of money, banking, and
credit. It supervises operations of banks and exercises regulatory powers over
nonbank financial institutions with quasi-banking functions.

Know more about BSP here. Click here to access BSP materials in the SERP-P
database.

About DBP

In the Philippines, development financing institutions play a pivotal role in the quest
for sustainable growth and development. And at the helm of the country’s march
toward progress is the Development Bank of the Philippines. As the country’s pre-
eminent development financial institution, DBP has taken upon itself the strategic task
of influencing and accelerating sustainable economic growth, through the provision of
resources, for the continued well-being of the Filipino people.

The DBP, under its new charter, is classified as a development bank and may perform
all other functions of a thrift bank. Its primary objective is to provide banking services
principally to cater to the medium and long-term needs of agricultural and industrial
enterprises with emphasis on small and medium-scale industries.

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The affairs and business of the Bank are directed, and its properties managed and
preserved, and its corporate powers exercised by a Board of Directors consisting of
nine (9) members appointed by the President of the Republic of the Philippines. The
Chief Executive Officer of the Bank is also the President who is elected by the Board
of Directors. The President is also the Vice Chairman of the Board.

History

DBP’s history can be traced back during the Commonwealth when the early
infrastructure for development financing was laid by the National Government.

1935 – The National Loan and Investment Board (NLIB) was created to coordinate
and manage government trust funds such as the Postal Savings Fund and the
Teacher’s Retirement Fund.

1939 – The Agricultural and Industrial Bank (AIB), which absorbed the functions of
the NLIB, was created and started to harness government resources until the outbreak
of war.

1946 – The government created the Rehabilitation Finance Corporation (RFC) under
R.A. No. 85 which absorbed the assets and took over the functions of the AIB. The
RFC provided credit facilities for the development of agriculture, commerce and
industry and the reconstruction of properties damaged by the war.

1958 – The RFC was reorganized into the Development Bank of the Philippines. The
change in corporate name marked the shift from rehabilitation to broader activities.
With an initial capital of P500 million subscribed by the government, the DBP
expanded its facilities and operations to accelerate national development efforts. This
forward thrust saw the establishment of a network of branches throughout the country.
The DBP tapped both foreign and local fund sources to complement its capital
resources. Credits were obtained directly from international financial institutions.

1963 – Congress broadened DBP’s powers by increasing its capitalization to P2-

billion and borrowing capacity to 10 times its paid-in capital and surplus. The lion’s
share of funding goes to industries in need of support.

1966 – DBP marked its debut as an investment bank, aiming to establish a broad and
prosperous securities market.

1967 – DBP raised its agricultural lending by 80 percent to ensure food security,
prioritizing rice and corn production. It likewise constructed a 120-hectare Greater
Manila Food Market in Fort Bonifacio.

1969 – Construction of the DBP Head Office Building began, and was completed in
1971. DBP-funded projects continued to drive growth in several industries,
accounting for 94 percent of the nation’s textile outputs, 90 percent of cement, 88
percent of steel, and 80 percent of all its pulp-mill capacity.

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1970 – The devaluation of the peso caught DBP at a vulnerable time given its
issuance of guarantees for dollar-denominated debts incurred by clients. With debts
coming due, the Bank cut down domestic lending operations and suspended almost all
new guarantees. Nevertheless, DBP projects still created 10,465 new jobs.

1971 – In response to the economic slowdown, DBP shifted its focus to countryside
development. Agricultural lending was directed toward food production, and
industrial lending shifted focus to industries that generated more employment and
utilized raw materials and agricultural products.

1973 – DBP’s capitalization was increased from P2-billion to P3-billion through

Presidential Decree 195. The Bank joined five other agencies in organizing the
Development Academy of the Philippines. Agriculture remaineds a top priority for
DBP.

1977 – DBP celebrated its 30th anniversary and was recognized as Southeast Asia’s
largest development bank, with P16.7-billion in assets. In 30 years, the Bank had lent
out P11.9-billion to 419,533 borrowers. In partnership with the National Housing
Authority, DBP also established a lending program for small businesses and
homeowners.

1978 – DBP launched its “Study Now, Pay Later” program, benefitting students
pursuing agriculture, engineering, economics, and other courses crucial to national
development.

1979 – DBP spent P1.304-billion for the refinancing of large industrial accounts
temporarily distressed by the Second Oil Shock. These industries included shipping,
mining, cement, hotels, and telecommunications.

1980 – Amid the oil crises, DBP provided support to energy and transport services by
supporting the search and development of alternative energy sources and the air-
conditioned “Love Buses” in Metro Manila.

1981 – DBP served as one of the primary conduits of funds in the National
Government’s efforts to bail out many troubled corporations. Lending activities are
suspended.

1984 – Affected by worldwide economic difficulties, a large number of DBP-financed

projects failed to make payments and the acceptance of new loans remained
suspended. DBP suffered a loss of P1.2-billion, a first in its 38-year history.

1986 – Former President Corazon C. Aquino issued Executive Order No. 81 which
provided for the 1986 Revised Charter that called for a clean-up of DBP’s books, staff
reorganization, and infusion of initial operating budget. The rehabilitation program
restored the Bank’s financial viability and DBP resumed lending operations. With the
transfer of non-performing assets together with liabilities on June 30, 1986 to the
National Government, DBP implemented an institutional strengthening program
covering a revision of the credit process and a training program for the
implementation of new lending thrusts. The Bank reopened its lending windows for
housing, agriculture, and small and medium scale industries.

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1988 – DBP resumed full development banking operations. The Bank was accredited
as a participating financial institution under the Industrial Guarantee and Loan Fund.

1992 – DBP was recognized as one of the World’s Top Ten Banks by The Banker.
The Bank continued to prioritize implementation of high-impact projects all over the
country.

1994 – DBP ranked 11th in terms of overall leadership among top Philippine
companies in the survey undertaken by the Far Eastern Economic Review in
association with Citibank.

1995 – DBP was granted an expanded banking license and attained universal banking
status.

1997 – DBP floated a 20 Billion Asian Yen Bond (US$169-million), the first of its
kind in the region. The Bank marked its 50th year by turning over a One Billion Peso
dividend check, representing 50% of its net income, and one of the biggest
contributions to the National Government among government-owned-and-controlled
corporations.

1998 – Former President Fidel V. Ramos signed Republic Act 8523 amending DBP’s
1986 Charter. Among the major provisions incorporated in the new DBP Charter were
the increase of authorized capital stock from P5-billion to P35-billion, and the
creation of the position of President and Chief Executive Officer.

1999 – DBP launched the LGU-Urban Water and Sanitation Project and allotted P6-
billion to the housing sector to help alleviate poverty.

2002 – The Bank became the first Philippine bank to be ISO 14001-certified for its
successful establishment and implementation of an Environmental Management
System.

2003 – The Asian Banker ranked DBP as the Strongest Bank in the Philippines for its
financial and operational parameters, asset quality, and improvements in profits and
assets from previous years. The Bank was also named 6th Best Employer in the
country in a study conducted by Hewitt Associates, the Management Association of
the Philippines, and BusinessWorld.

2005 – The Bank’s loan portfolio reached an all-time high of P79.3-billion. Out of the
country’s top 10 banks, DBP ranked 7th in terms of assets and 4th in terms of net
income performance.

2007 – DBP was conferred an Outstanding Corporate Governance award by the

Association of Development Financing Institutions in Asia and the Pacific.

2008 – DBP stepped up its Overseas Filipino Workers Assistance Program,

conducting a series of road shows in Hong Kong to educate migrant workers.

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2010 – DBP’s Quality Management System received ISO 9001:2008 certification for
remittance operations, cash management, and retail lending. The DBP Institute was
also inaugurated in Baguio City.

2012 – DBP successfully raised US$300-million in global dollar notes as its

contribution to the P200-billion Private-Public Partnership Projects of the Philippines.
The Bank’s water sustainability initiative in Boracay bagged an award from the
Association of Development Financing Institutions in Asia and the Pacific.

2015 – Largely fueled by loans, DBP’s total assets crossed the half-trillion mark at
P504-billion. Branch banking operations were intensified especially in the countryside.

2017 – DBP was named “SME Bank of the Year’’ in The Asian Banker–Philippine
Country Awards.

2020 – DBP joined the ranks of trillion-peso banks in the country, with total assets
reaching P1.04-trillion.

2021 – DBP was conferred by the Department of Trade and Industry with a Philippine
Quality Award (PQA) Level 2 Award for its proficient practice of quality
management.

These developments paved the way for the pursuit of other activities that allowed the
Bank to fulfill its development mandate more meaningfully.

Today, DBP sharpens its development focus as the country’s Infrastructure Bank.
DBP supports the National Government’s effort towards building a stronger and more
resilient Philippine economy, through broader financial inclusion and sustainable
infrastructure development.

Focusing on sectors with the biggest and most immediate impact on every Filipino’s
well-being, DBP has put in place a comprehensive framework to spur progress in vital
sectors of the economy focusing on four major areas – infrastructure and logistics;
social services; micro, small and medium enterprises; and the environment.

Among the Bank’s flagship initiatives are the Infrastructure Contractors Support
(ICONS); Connecting Rural Urban Intermodal Systems Efficiently (CRUISE); Water
for Every Filipino (WATER); Financing Utilities for Sustainable Energy
Development (FUSED); Building Affordable Homes Accessible to Every Filipino
(BAHAY); Strategic Healthcare Investment for Enhanced Lending and Development
(SHIELD); Education Sector Support for Knowledge, Wisdom and Empowerment
through Lending Assistance (ESKWELA); DBP Forest; and Green Financing/ Green
Climate Fund programs.

When you think about a bank, perhaps the first thing that pops into your mind is the
place where you manage your finances through services and products like deposits
and loans. However, there is a financial institution that doesn't have a commercial
focus but that plays a key role in the economy and that is also called a bank: a central
bank.

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A central bank is a public institution that is responsible for implementing monetary

policy, managing the currency of a country, or group of countries, and controlling the
money supply. Some of the main responsibilities central banks have are:

Defining monetary policy – central banks set macroeconomic objectives such as to

ensure price stability and economic growth. To do this, financial authorities have tools
like setting official interest rates, which have an impact on the cost of money. Based
on the economic situation, central banks will opt to either increase official interest
rates (to control inflation, for example) or decrease them (to encourage consumption
and boost economic growth).

Regulating money in circulation – they are the authority for issuing coins and notes,
the money supply, and for regulating how much money is in circulation. Central
banks do this to inject liquidity into the economy so that different economic agents
(families, companies and States) can use it in their transactions. With regard to
currencies, central banks are also responsible for carrying out operations to ensure
that exchange rates remain stable, as well for owning and controlling their official
reserves.

Overseeing the inter-bank market – they ensure that the relevant financial laws are
respected and they monitor national payment systems to make sure that they are
working properly.

Loaning liquidity to commercial banks if necessary for solvency issues – aside from
the loans made between institutions in the inter-bank market, as mentioned in the
previous bullet point, commercial banks can also receive liquidity from central banks
in exchange for collateral, such as guaranteed public bonds. This means that, if
required, commercial banking institutions can cover what they need in the short-term,
while the central banks try and ensure price stability by mediating in credit
fluctuations.

Taking on an advisory role – they regularly produce studies and reports that are useful
for governments or private organizations, for example.
Central banks do all of this independently of the political group in power in any given
country, as they aim to ensure the stability of the financial system. Their decisions are
directly dependent on the supervisory body that composes the financial institution.

What central banks are there?

Central banks represent a country's financial institution but they can also represent a
group of them. The eurozone is an example of a financial institution made up of a
group of countries. In this case, the power falls under the Eurosystem, which is made
up of two fundamental parts: the European Central Bank (ECB) and the national
central banks of the eurozone's member states that have the euro as their official
currency. The Bank of Spain, the Deutsche Bundesbank and the National Bank of
Poland (Narodowy Bank Polski, NBP) are some examples.

As there are some countries that are part of the European Union but not part of the
eurozone, in addition to the Eurosystem there is also another organisation called the
European System of Central Banks (ESCB). This is made up of both the European

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Central Bank and all the national central banks of the countries that make up the
European Union, whether they have the euro as their official currency or not.

In the United States, the Federal Reserve System is the central banking system there.
Known simply as the Fed, it is responsible for carrying out the aforementioned tasks
to watch over the country's economy and currency – in this case the dollar.

Also in the Americas, other examples of central banks are Banxico, for Mexico and
Banco Central do Brasil for Brazil.

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II. PRIMARY OBJECTIVES OF BANGKO SENTRAL NG

PILIPINAS
Role of the Central Bank
Primary Objectives
The Central Bank's primary objectives have been set out in legislation. Its Strategic
Responsibilities as outlined below are aligned to these objectives.

The Law Reform Commission provides an “administrative consolidation” of the

Central Bank Act 1942. “While every care has been taken in the preparation of this
Revised Act, the Law Reform Commission can assume no responsibility for and give
no guarantees, undertakings or warranties concerning the accuracy, completeness or
up to date nature of the information provided and does not accept any liability
whatsoever arising from any errors or omission”.

Strategic Responsibilities
Eurosystem Effectiveness and Price Stability
The Central Bank is responsible for contributing to the formulation of Eurosystem
monetary policy and helping to ensure that the euro area inflation objective is
achieved. It supports the Governor in his role as a member of the Governing Council
of the European Central Bank (ECB). The primary objective of the ECB's monetary
policy is to maintain price stability. In this pursuit, the ECB aims to maintain inflation
rates at 2% over the medium term. Read more in our Monetary Policy section.

Stability of the Financial System

The Central Bank has an explicit mandate in domestic and European legislation to
contribute to financial stability in Ireland and at euro area and EU levels. It does so by
enhancing the macro-prudential policy framework by further developing a suite of
indicators to assess systemic risks, developing macro-prudential tools to address
emerging risks, conducting analytical research to inform on the calibration of these
tools, and evaluating the effectiveness of these tools in limiting systemic risk.

The Central Bank is also mandated to establish and operate a Central Credit Register
which will document loans to individuals and businesses. This will enhance the
Central Bank's insight into credit information. When operational, all lenders will be
required to submit personal and credit information on loan agreements of €500 or
more to the Register. Read more in our Financial Stability section.

Protection of Consumer of Financial Services

As the regulator of financial service providers and markets in Ireland, the Central
Bank has to ensure that the best interests of consumers are protected. The Central
Bank works to develop a positive consumer focused culture within regulated firms,
ensuring the consumer protection framework remains effective by reviewing,
developing and enhancing the protections in place and by influencing and shaping
European and international developments, and monitoring and enforcing compliance
with the required standards through themed reviews and inspections. Find out more in
our Consumer Protection and Consumer Hub sections.

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Regulation of Financial Institutions and Enforcement Actions

The Central Bank aims to ensure that regulated firms are financially sound and safely
managed. Regulation of financial institutions and markets is undertaken through risk-
based supervision, which is underpinned by credible enforcement deterrents. This
mandate is delivered through a range of tools which include supervising banks within
the Single Supervisory Mechanism framework, monitoring of regulatory returns filed
with the Central Bank, approval of persons under the fitness and probity standards,
and taking enforcement actions when necessary. The Central Bank aims to take a
proportionate approach to its actions as an intrusive and assertive regulator and does
not seek to ensure a ‘zero-failure’ system of regulation and supervision, but to
safeguard that any firms that fail, do so in a way that avoids significant disruption to
financial services or consumers. Find out more about how and who we regulate and
visit our Regulation section.

Regulatory Policy Development

A high quality and effective regulatory framework is essential in requiring financial
firms to operate to high standards as it provides the basis for supervising and
enforcing the key principles of organisational and financial soundness, consumer
protection, and effectively functioning markets.

The Central Bank engages actively in the European regulatory policy process,
contributing to the development of sound rules well adapted to the Irish context and
supporting the work to transpose those rules into Irish law and provide the framework
for their application to Irish financial firms and markets.

Efficient and Effective Payment and Settlement Systems and Currency Services
The Central Bank, in conjunction with the ECB and other national competent
authorities, is responsible for ensuring that payment, settlement, and currency systems
are safe, resilient and efficient and that access to such systems is not restricted. The
Central Bank also ensures the provision of banknotes and coins and other related
currency services to the public, a key component of payments systems. Find out more
in our Payments Systems and Currency section.

Independent Economic Advice and High Quality Financial Statistics

The Central Bank aims to ensure that its economic advice is forward looking and
independent and that statistics are robust and relevant. To achieve this, the Central
Bank undertakes data collection, statistical analysis, economic analysis and research
designed to inform economic policy making domestically and at the euro area level.
The analytical and statistical outputs are disseminated through various publications,
seminars and through ongoing interactions with government departments, academia
and commentators. Find out more in our Publications and Statistics sections.

Recovery and Resolution of Financial Institutions

The Central Bank aims to develop a robust framework is in place to ensure that failed
or failing regulated firms go through an orderly resolution. The Central Bank requires
all banks and investment firms within scope to prepare recovery plans, which set
down the measures they would adopt in the event of their financial deterioration. The
Central Bank then puts feasible and credible resolution plans in place for those firms.

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Media and Research - Speeches

​ ​ ​ ​ FB ShareTwitter Share

Toward a sustainable Philippine economy

Date: October 06, 2022
Occasion: Harvard Business School – Club of the Philippines Virtual Forum
Speaker: BSP Governor Felipe M. Medalla
Download PDF (111kb) | 8 page/s

Good afternoon. Thank you to the Harvard Business School – Club of the Philippines
for inviting me to speak at today’s event.

While I did not go to Harvard, I am very pleased that I am able to speak with your
community, and I’m also looking forward to hearing your views and questions.

First, I will talk about what we are doing in the BSP. We, of course, value this
opportunity to share our views on the economy. I think the more the country
understands the BSP, the more effective it will be in doing its work.

I know most of you may want to hear me speak on the interest rate and the exchange
rate from the get-go – both pressing topics that deserve extensive discussion, and I
will definitely be touching on these later on. But we at the BSP make sure to anchor
our actions on what we call our three pillars.

Anchored on Three Pillars

Our three pillars are price stability, financial stability, and efficient and reliable
payments and settlements system.

As I always say, the three pillars are constant. What changes are the environment and,
in the case of the payment system, the technology.

Price stability: it is important to have low and predictable inflation because when
inflation is low and predictable, it is easier for the government and the private sector
to borrow. It is very hard to decide whether an interest rate is adequate or not if you
do not know what the inflation rate would be. In some countries where inflation is
very low, a 7 percent interest rate is high. In countries where their inflation rate is
high, 7 percent may not be enough. So, if there is uncertainty about what the inflation
rate would be…clearly, that will get in the way of more efficient functioning of the
financial system.

Financial stability: if banks are weak, they often become reluctant to lend. As we
observed after the Asian Financial Crisis, banks with weak balance sheets are often
correlated with slower growth of the economy. Indeed, there are studies showing that
right after a financial crisis that is related to real estate, economies grow significantly
lower than normal for as long as three to five years.

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Lastly, the importance of an efficient payments and settlements system is as old as

time, but now, with new technologies, it is becoming even more important. Fintech
will not only make the economy more efficient; it may make governance easier. Of
course, it will most likely make it easier for the financial system to be more
inclusive.

My talk will focus on these three pillars.

Current Inflationary Pressures, the Resulting Inflation Path, and the BSP’s Policy
Actions

Right now, because inflation is a big problem everywhere, it’s getting most of the
attention. The chart that you will see shows our forecasts, which, of course, get
revised every [Monetary Board] policy meeting. We meet approximately every six
weeks to reassess our interest rate and monetary policy settings. The way we measure
inflation on a yearly basis is the average of the twelve year-on-year headline inflation
for the year.

Our target is 2-4 percent. Clearly, we’re going to miss it this year. Our forecast of
average inflation for this year is 5.4 percent…but because of the relatively high
inflation prints [in recent months], we have actually revised the average inflation for
the year to 5.6 percent. The only reason it is 5.6 percent and not 6.9 percent as in the
latest print is [because] the earlier months had lower inflation.

Note that we think that inflation will begin to subside, and our own forecast is that by
October or November, the peak year-on-year inflation will have happened, and it
should be going down from that point on. But since we’re coming from a very high
level, [inflation for] the first half of 2023 will still be above 4 percent, but the second
half will be below 4 percent – probably closer to 3 percent than to 4 percent. But as
you average out, the relatively high inflation in the first six months [in 2023] may
outweigh the lower inflation in the last six months such that we [full-year figure] may
actually exceed slightly the average inflation target for 2023. But note that we expect
inflation to go back to within target by 2024.

[So] the path of our inflation is target consistent. We may be off [target] now because
of very, very strong supply shocks, but with the monetary policy settings that we have,
when the supply shocks eventually die out – meaning prices may have risen but will
stop rising – then just like the sheer arithmetic of inflation computation [where] the
denominator is higher, and the monthly change is lower; therefore the year-on-year
inflation will be lower. We refer to that as the base effect.

Inflation pressures are beginning to broaden such that what we call core inflation is
now also above 4 percent. Core inflation, [explained] in the simplest way: suppose
you take out all the extreme inflation risks – [items that are] too low and too high –
what remains? The sign that it has broadened is that even if you take out the very high
inflation and low inflation commodities, average inflation is now above 4 percent.
Clearly, the central bank had to act to make sure that what we call second-order
effects – high inflation begetting higher inflation – does not happen. [We had to make
sure] that the month-on-month changes in prices eventually normalize, and the initial
momentum of inflation will disappear and normalize.

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The way to do that, of course, is to manage demand. Although our interest rate hikes
are not very effective in bringing down the current inflation – because the current
inflation is largely due to supply [pressures] – the moment [the impact of] supply
shocks dissipates, the high inflation that is caused by supply [shocks] would no longer
not translate to an increased momentum… that inflationary expectations do not result
in self-fulfilling expectations, where high inflation causes higher inflationary
expectations, which in turn causes higher inflation in the future.

The Philippines is not the only country that is suffering from this. [If you look at] the
ratio of the current inflation to the ten-year inflation average, we are actually one of
the countries with a relatively low ratio. Many other countries have even higher
inflation than us. It is the rich countries that have higher inflation now relative to
emerging markets.

While the inflation was driven by supply concerns, we are now seeing second-order
effects starting to manifest in terms of wage and transport hike petitions. That is,
exactly what we’re trying to prevent: high prices beget higher prices and inflation
gains momentum.

Now, what have we done? Let me start with where we came from. We are coming
from an extremely accommodative monetary policy, which was our response to
COVID.

We brought down the policy rate to a historic low of 2 percent; for a country that
normally has 3 percent inflation on average, setting policy rates at 2 percent means we
are setting a negative policy rate. After adjusting for inflation, we actually had
negative interest rates. That was needed, of course, because COVID brought down the
economy by nearly ten percent [in 2020].

We knew, of course, that we must have an exit strategy. As the economy recovers, we
should be gradually withdrawing the monetary stimulus. Our plan was a very simple
one: very gradual [rate liftoff], maybe every meeting 25 bps [adjustments], and
winding down of stimulative policies that COVID made us do.

Unfortunately, there were a lot of surprises.

The two main surprises are [first] supply shocks which had two sources: the Ukraine-
Russia war, which pushed up fuel, fertilizer, and wheat costs, and the other [source
was] due to domestic supply shocks because of pork shortage, fish shortage, and more
recently, bad sugar supply, which together with our very restrictive, protectionist
attitude to sugar, that is sugar imports are not [based on] market decisions but
decisions of politicians and bureaucrats. For instance, we see inflation related to sugar
as high as 40 percent per year.

[Second], the other problem is that it turns out that US inflation is much higher and
much more persistent than anyone had imagined six months ago. So, the US has
become determined to raise policy rates. They started doing this since March; they
have already raised their policy rates by 300 bps. This caused a narrowing of the
differential in the interest rate between the Philippines and the US. Since the US

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dollar is the safe haven currency, a narrower differential between PH and US interest
rates will cause the peso to depreciate.

To top it all, the global shocks increased the price of our imports, increasing our
current account deficit from US$5 billion last year to our forecast of nearly US$20
billion this year. The current account is [what remains after it is] stripped of the
payments and receipts of the Philippines from other countries of capital flows. So take
out the principal but include interest and dividends: that is the current account. Our
exports of goods are much smaller than our imports of goods. On the remittance and
services side, it’s positive because of remittances and BPO receipts. When you
combine the two, we went from a US$5 billion deficit to a US$20 billion deficit
largely because of the high prices of imports.

Our own calculations show that 2/3 of the increase in the current account deficit is
due to high [import] prices and not due to higher volume.

These are all happening at the same time: the US raising policy rates, strengthening
the dollar, and high inflation. Our response was to increase policy rates. If we were
just responding to local inflation, the policy rate [adjustments] might have been much
lower. But given that the US is also increasing policy rates [at a rapid pace], then that
required a bigger response.

The most dramatic of these was that we had an off-cycle increase. There was no
scheduled meeting, and yet we increased the policy rate by 75 bps. That was in July.
Then, we followed it up with two 50 bps. This is something we do not normally do,
but we had to do it because of the [current] inflation.

Since the US inflation is much higher, we do not have to match the Fed’s movements
point by point. At the same time, we cannot not respond to what the Fed is doing.

Fortunately, we have other tools other than increasing our interest rates.

The danger of increasing interest rates is that if you do too much of that, the economy
could weaken, and it actually begins to backfire: people lose confidence in the
economy, and money flows out. As money flows out, instead of the interest rates
making the peso stronger, it could actually contribute to [currency] weakness. Just
like any medicine, you can have excessive dosage.

The other point is that the effect of rate hikes on demand takes 6-18 months before
they fully materialize. That is the reason we are saying that because of the very nature
of inflation, year-on-year inflation will persist above 4 percent for quite some time,
maybe as late as the middle of 2023. But month-on-month inflation will be consistent
with 3 percent hopefully by end-2022.

If you look only at certain currencies, the Korean Won and the Japanese Yen
experienced more depreciation than us. If you include the Euro and many other
currencies, we will actually be middle of the pack.

Now, as I said, we cannot rely completely on any single tool. The depreciation solves
one problem: the current account deficit, a weaker peso will, hopefully, make people

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think twice before they buy imported goods, or they may reduce the prices of
imported goods, or it may even stimulate exports. But too much depreciation [may
cause some] people to no longer believe in our inflation targets.

Clearly, we cannot rely only on depreciation to address our current account deficit;
interest rate hikes have to come in. But even that [by itself] is not enough. Too high
an interest rate changes could actually weaken the economy.

Fortunately, we have another tool: sell reserves. It was a good thing that during the
early days when I was a member of the Monetary Board, the BSP was actually busy
preventing the peso from over-appreciating. From international reserves of US$45
billion…in four or five years, it went to US$85 billion, then eventually, it reached
US$110 billion. Our reserves today remain more than adequate.

As you can see in this table, we are using all three tools:

• If you look at the first column, we are more depreciated than all countries in the list
except South Korea. We allowed depreciation to encourage people to buy fewer
imported goods and encourage exporters to export more.

• In the second column, you will note that we adjusted the policy rate more than all
countries in the list. We increased the policy rate by [a cumulative] 225 bps; Korea
and India, the closest to us, only raised by 150 bps and 140 bps [respectively].
• Indonesia and Thailand did much less than us. In the case of Thailand, the reason is
that their economy was much more ravaged by COVID because of their big
dependence on tourism. In our case, we expect the level of production, or GDP, in this
quarter to already be greater than pre-pandemic levels. Thailand is not quite there yet.
So clearly, the pressure to not raise rates is high.

• [In the third column, you can see that] Thailand has much more reserves to sell [than
the Philippines]. The absolute volume of their international reserves has fallen by
US$31 billion, In contrast, PH reserves have only fallen by US$11 billion. So
Thailand is relying more on selling reserves than raising rates. But just like us, they’re
accepting quite a bit of depreciation – the peso depreciated by 13 percent, and the
Thai baht depreciated by 12 percent year-to-date.

Those are the things you will observe. We are doing a balancing act, using three
possible levers: allowing the currency to depreciate, changing interest rates, and
selling dollars. Those three together, we hope, will be the medicine, if done in the
right combination, that will give us the adjustment to hit our inflation target with the
least amount of pain. By ‘least amount of pain’, we mean reduction of growth brought
about by higher interest rates.

Finally, there are other things that the government can do that have nothing to do with
monetary policy. I already mentioned sugar. The inflation rate of sugar and products
that use a lot of sugar in our consumer price basket is 40 percent in the most recent
inflation print…for the simple reason that the economy is growing, but sugar
production is declining. Therefore, the correct response would be to import more. The
decision to import, there will always be objections from the sector that will be
affected. But I am confident that the economic managers will be able to convince the

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President that, in this particular case, it is not in our interest to have high sugar prices.
Indeed, the effect of high sugar prices on food processing firms far outweighs the
benefits that high sugar prices will have on sugar producers.

[We back] liberalization of imports [or] allowing the things that become scarce
because of domestic shocks to be imported. We had a very positive lesson here from
rice. The previous administration said, ‘The decision to import rice will be based on
the policy of tariffs. If you want less imports, you raise tariffs.’ Importation is a tariff
issue, not a bureaucratic decision.

As you can see, rice is not contributing [as much] to inflation. These kinds of reforms
make markets work, fortunately, increase efficiency and, at the same time, reduce
inflation.

The Banking Sector Innovations: A Source of Resilience

Now, I move to our second pillar: financial stability.

The best way to describe this slide is that we have a strong banking system. It’s
growing – whether you look at deposits or loans. And it is growing in a healthy way –
the liquidity is ample, loan growth is strong, and at the same time, the coverage ratio
of non-performing loans is high at 99.2 percent.

We attribute this partly to the wisdom of our bankers and partly to our regulations that
say, ‘If you take on more risk, the central bank will tell you to put in more capital.’

So far, we think that our banking supervision has been very effective, plus the fact
that the industry has been, due to the lessons they learned from the Asian Financial
Crisis, managed very well.

Now, lending continues to grow. There was a big dip because of COVID, but as you
can see in this chart, there has been a modest recovery. The last print in August was at
12 percent.

Let me now go to BSP’s idea of what sustainable central banking is. Given climate
change, we think we should move toward a more sustainable [form of] central
banking.

As the regulator, we want the banks to properly price in environmental risk. We want
the interest rate to reflect that. If you are lending to a place that has high
environmental risk, the interest rate should reflect it. If default happens, you want
banks to remain strong even after default because the risk of default has been properly
priced in.

We also want to encourage green lending, but it is easier said than done because it is
hard to tell which lending is really green and which one is not; that phenomenon is
called ‘greenwashing.’

We need to develop the ability to distinguish which lending is really contributing to

the reduction of emissions.

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We are also hoping we can get the necessary revisions in the Agri-Agra Law so that
the incentives given to those that lend to agriculture and agrarian reform beneficiaries,
the loans to sustainable finance can be given the same treatment as compliance with
the mandatory credit to agriculture. We will soon release the exposure draft circular
implementing said law.

Digitalization of Payments to Create Pools of Efficiency

Now, onto our third pillar: the importance of promoting digital payments.

We have a so-called Digital Payments Transformation Roadmap. We want to increase

the proportion of Filipinos with bank accounts to 70 percent. E-wallets have greatly
contributed to that. In addition, we want the transactions that are digital to be 50
percent. The increase in the number of bank accounts is largely attributed to e-money.
The number of bank accounts, what we call basic deposit accounts, already increased.
Both in terms of traditional bank accounts and e-wallets, there has been quite a big
increase.

In addition, we want the digital system to contribute to efficiency. For instance, if

Customs payments are all electronic – [meaning] your duties and import taxes are
settled while the ship is mid-way between the source and Philippine ports – then there
will be less corruption, less room for negotiation and extortion.

If tax collection is digital, payments will be easier and more people will find it easier
to pay taxes. As the experience of other countries shows, collections will improve.

In addition, we have this vision of expanding digital payments cross-border. The

vision is that any ASEAN citizen can use his phone to make payments in any ASEAN
country.

At the start, we are doing this through bilateral agreements. [We are linking] our fast
payment system, called InstaPay, and Singapore’s DuitNow. With this agreement, we
should be able to enable payments using mobile phones of Singapore citizens to the
Philippines and vice versa. Our own agreement with Indonesia will do the same for
Filipinos in Indonesia and Indonesians in the Philippines.

Of course, the dream is a multilateral platform where it is easy to plug in and the
agreement does not have to be bilateral. There is a platform by Bank for International
Settlements (BIS) which will eliminate the need for these country-to-country
agreements.

I already talked about how digital payments make the economy more efficient. Some
examples of collaboration with other agencies to expand digital payments cover
paying your jeepney fare and paying market vendors and tricycles using QR code
through Paleng-QR Ph. BIR is also introducing e-invoicing, and DTI has its own e-
commerce roadmap.

Key Messages

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I’d like to end with the following messages:

The BSP is committed to bringing inflation back to a target-consistent path. We will

use all the tools at our disposal to achieve this.

The banking system is sound and stable and capable of lending support to economic
growth.

Lastly, we will continue to promote digitalization as a way to reinforce and expand

financial inclusion and contribute to more efficiency in the payments system.

Thank you very much for your attention. I look forward to your questions.
Citizen's Charter
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I. Mandate

The primary objective of the Bangko Sentral is to maintain price stability conducive
to a balanced and sustainable growth of the economy and employment. It shall also
promote and maintain monetary stability and the convertibility of the peso.

The Bangko Sentral shall promote financial stability and closely work with the
National Government, including, but not limited to, the Department of Finance,
Securities and Exchange Commission, the Insurance Commission, and the Philippine
Deposit Insurance Corporation.

The Bangko Sentral shall oversee the payment and settlement systems in the
Philippines, including critical financial market infrastructures, in order to promote
sound and prudent practices consistent with the maintenance of financial stability.

In the attainment of its objectives, the Bangko Sentral shall promote broad and
convenient access to high-quality financial services and consider the interest of the
general public.

II. Vision

The BSP aims to be recognized globally as the monetary authority and primary
financial system supervisor that supports a strong economy and promotes a high
quality of life for all Filipinos.

III. Mission

To promote and maintain price stability, a strong financial system, and a safe and
efficient payments and settlements system conducive to a sustainable and inclusive
growth of the economy.

IV. Service Pledge

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We, the officers and employees of the Bangko Sentral ng Pilipinas, in our pursuit to
be a truly world-class central monetary authority, commit ourselves to:

Be of service to the public on banking days during office hours, with authorized and
properly identified personnel providing continuous, prompt, efficient and courteous
assistance.

Satisfy requirements of clients, including those with special needs, while within our
premises.

Provide an active feedback and redress mechanism through any of the following:

1. Assistance desks located in our offices;

2. Contact Number: (+632) 8811-1277 (8811-1BSP);
3. Email: [email protected]

with an assurance of a reply of our action within five (5) banking days from the time
we are notified of your complaint.

Contact Information of the BSP Committee on Anti-Red Tape (CART) and its
Technical Working Group (TWG), Anti-Red Tape Authority (ARTA), Presidential
Complaint Center (PCC), and Contact Center ng Bayan (CCB):

1. Directory of BSP CART and its TWG

2. ARTA: [email protected]
Telephone Number: 8-478-5093

3. PCC: [email protected]
Telephone Number: 8888 or +63(2)87368621

4. CCB: [email protected]
Mobile Number: 0908 8816565

FEEDBACK AND COMPLAINTS MECHANISM

1. HOW TO SEND FEEDBACK (STANDARD PROCEDURE USING FEEDBACK

MANAGEMENT SYSTEM FOR DEPARTMENTS/OFFICES WITH EXTERNAL
STAKEHOLDERS)

For walk-in clients, they may provide feedback by answering the Feedback
Management System (FMS) survey-type questionnaire which can be accessed through
the BSP website’s Feedback page under Quick Links and by typing the transaction
code. Transaction code slip will be provided by the Servicing Department/Office
(SDO).

The feedback page is accessible from 8:00 am to 5:00 p.m., Mondays to Fridays. The
advisable browser is Mozilla Firefox.

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Another way to access the feedback form is through a mobile device. The
complainant may scan the QR Code embedded in the transaction code slip and
proceed with answering the questionnaire.

Lastly, feedback may also be sent through the FMS kiosk stationed at gate 3. Clients
need to indicate the name of the SDO for reference.

2. HOW FEEDBACK AND COMPLAINTS ARE PROCESSED

Email alert on sad emoticon/negative feedback/complaint is received real time by all

FMS users of the department/office. FMS designate/alternate shall encode the action
taken within two (2) working days from receipt of sad emoticon/negative feedback.

If negative feedback is more than 20% of the day’s number of respondents:

FMS designate/alternate of the SDO generates and endorses the Daily i-Report within
a day (24 hours) to the SDO Head and other concerned personnel to review and reply
to the concerned issue.

Action Report (i.e., with information on action to be taken and target date of
completion/resolution) approved by the SDO Head is transmitted to the Director of
the Communication Office (CO) within two (2) working days from receipt of negative
feedback/complaint.
In case the feedback/complaint is within the purview of another department/office of
the BSP, the FMS Designate/Alternate of the SDO requests transfer of feedback to
appropriate department/office through the FMS. Request for transfer is done within
one (1) working day from receipt of sad emoticon/negative feedback/complaint (when
applicable).

V. List of Services

CORPORATE SERVICES SECTOR Page

External Services
Sale of Real Properties / Assets Acquired by the BSP – Asset Management
Department (AMD) 18
Lease out BSP-Acquired Real Properties – AMD 23
Request for Observation Tour/Bench-Marking/Briefing/Info Session – Capacity
Development Department (CDD) 32
Request to Conduct Presentation of Programs – CDD 34
Request for Certifications for Previously Conducted Courses – CDD 36
Evaluation and Processing Training Invitations – CDD 38
Transfer and Closure of Demand Deposit Account (DDA) – Financial Accounting
Department (FAD) 42
Issuance of Statement of Account (SOA) – DDA – FAD 44
Transfer of Funds – DDA – FAD 45
Confirmation of Account Balances of Foreign Financial Institutions (FFIs) to their
External Auditors – FAD 47

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Issuance of Statement of Accounts (SOAs) to FFIs – FAD 48

Confirmation of Demand Deposit Account (DDA) – FAD 49
Confirmation of Accounts Payable – FAD 50
Registration of Authorized Recipients of Statement of Account (SOA) – FAD 51
Inquiries on Demand Deposit Account (DDA) Transactions – FAD 52
Accommodation of Check Deposit – FAD 53
Confirmation of Accounts Receivable (AR) – Funds Administration Department
(FuAD) 56
Issuance of Order of Payment (OP) – FuAD 57
Uploading of Collection Reports through the New Order of Payment System (NOPS)
– FuAD 58
Issuance of Payment Advice (PA) and Tax Certificates (TC) – FuAD 59
Internal Services
Issuance of Clearance from Records and Property Accountability – Administrative
Services Department (ASD) 62
Submission of the Approved Request for Budget Adjustments – Budget Management
Department (BMD) 67
Submission of Request for Budget Adjustments (Submission of request for fund
transfer from the Provision for Contingency) – BMD 68
Submission of request for Budget Adjustments (Submission of request for Budget
Reallocation) – BMD 70
Conduct In-house Course Offering – CDD 74
Certification of Outstanding Payables for Payment – FAD 77
Issuance of Order of Payment (OP) – FuAD 80
Grant of Cash Advance (CA) – BSP Personnel – FuAD 81
Payment of Reimbursement Claim – FuAD 82
Issuance of Clearance Certificate – FuAD 83
Certification of Funds Availability – FuAD 84
Payments of Salaries, Allowances, Reimbursements, Cash Advances to BSP
employees – FuAD 86
Payments to Suppliers, Service Providers and other BSP Creditors – FuAD 88
New Order of Payment System (NOPS) Administration – Office of the Managing
Director Comptrollership Sub-sector (OMD-COSS) Financial Data and Systems
Support Group (FDSSG) 92
Grant Read-and Print Access to Budgetary and Expense Control System (BECS) –
OMD-COSS FDSSG 93
Core Financial Accounting System (cFAS) Administration, Accountee and Bank
Account Registration – OMD-COSS FDSSG 94
Pre-employment Medical Examination Process – HWD 97
Processing of Reimbursement of Medical Expenses – HWD 100
Processing of Charge Accounts and Medical Claims of Retirees/Deceased and
Transferees – HWD 103
Clearance Processing – HWD 107
EXECUTIVE OFFICES
External Services
Access to the BSP’s Monetary Operations System (MOS)- Domestic Market
Operations Department (DMOD) 111
Registration of the Monetary Operations System (MOS) User Account and Smart
Card – DMOD 113

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Updating of the Monetary Operations System (MOS) User Account and Smart Card –
DMOD 115
Manual Submission of Bids/Placements to the BSP Facilities – DMOD 117
Transacting in the Overnight Lending Facility (OLF) of the BSP – DMOD 118
FINANCIAL SUPERVISION SECTOR
External Services
Application for Authority to Establish and Operate as Non-Bank Credit Card Issuer
121
Application for Authority to Establish and Operate as Money Service Business (MSB)
161
Application for Authority to Establish and Operate as Pawnshop (PS) 201
Application for Grant of Authority to Establish a Bank 241
Application for Grant of Authority to Establish a Foreign Bank Branch 281
Application for Authority to Establish and Operate as a Non-Stock Savings and Loan
Association (NSSLA) 313
Application for Grant of Authority to Establish a Representative Office (RO) /
Offshore Banking Unit (OBU) of Foreign Banks 353
Application for Authority to Establish a Trust Corporation 379
Issuance of License/Authority to Operate as Virtual Asset Service Provider (VASP)
and Offer Advanced Electronic Payment and Financial Services (EPFS) 403
Application for Authority to Establish and Operate a Stand-Alone Non-Bank
Financial Institution with Quasi-Banking Functions 448
MONETARY AND ECONOMICS SECTOR
External Services
Processing of Requests for Monetary Board (MB) Opinion on Proposed Domestic
Borrowings of Government Entities – Department of Economic Research (DER) 495
Rediscounting Facility: Stage I – Application for Rediscounting Line – Department of
Loans and Credit (DLC) 502
Rediscounting Facility: Stage II – Application to Participate in the Electronic
Rediscounting System (eRS) – DLC 509
Approval of public sector foreign/foreign currency loans/borrowings – IOD 516
Approval of publicly-guaranteed private sector foreign/foreign currency
loans/borrowings – IOD 519
Registration of publicly-guaranteed private sector foreign/foreign currency
loans/borrowings – IOD 522
Notification to the BSP of loan amendments/changes in publicly- guaranteed private
sector foreign/foreign currency loans/borrowings – IOD 526
Notice of private sector to BSP on signing of covering loan documents of its foreign
loans/borrowings that are not publicly guaranteed – IOD (Delisted) 529
Registration of private sector foreign loans/borrowings that are not publicly-
guaranteed – IOD 530
Notification to the BSP of loan amendments/changes in private sector foreign
loans/borrowing that are not publicly-guaranteed – IOD 532
Registration of Inward Foreign Investments – IOD 535
Authority for cross-border transfer of legal tender Philippine currency in excess of the
limit under Section 4.1 of the Manual of Regulations on Foreign Exchange
Transactions (FX Manual), as amended – IOD 538
PAYMENTS AND CURRENCY MANAGEMENT SECTOR
External Services

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Authentication of Security Documents – Banknotes and Securities Production

Management Department (BSPMD) 546
Examination of Mutilated/Doubtful Currencies Classified as Highly Technical or with
Severe Mutilation – Currency Policy and Integrity Department (CPID) 551
Security Plant Complex (SPC) Gallery Tour on SPC currency production/operation –
Department of General Services (DGS) 559
Sale of souvenir items – DGS 561
Safe Work Permit: Hot Work Permit/Confined Space Entry Permit/Demolition Permit
– DGS 563
Issuance of Payment Advice (PA) and Tax Certificates (TC) – Financial Services
Group (FSG) 567
Issuance of Order of Payment – FSG 569
Gold Buying Program – Mint and Refinery Operations Department (MROD) 573
Issuance of Authorization to Import Regulated Coin Blanks / Coins of Various Metals
- MROD 581
Issuance of Authorization to Import or the Subsequent Resale of Color Reproduction
Machines – Payments and Currency Investigation Group (PCIG), Office of the
Managing Director – Payments and Currency Development Sub-sector (OMD-PCDSs)
587
Issuance of Permit to Reproduce or Use of Facsimiles of Legal Tender Philippine
Notes and Coins – PCIG 591
Participation in the Philippine Payment and Settlement System (PhilPaSSplus) –
Payments and Settlements Department (PSD) (Updated) 596
PhilPaSSplus User Account Registration – PSD (Updated) 599
PhilPaSSplus Smart Card Configuration – PSD (Updated) 601
Issuance of Certificate of Registration as Operator of a Payment System (OPS) –
Payments Supervision and Licensing Department (PSLD) 605
Internal Services
Certification of Funds Availability – FSG 612
Enrollment of Suppliers, Contractors, Service Providers and Other External BSP
Creditors Bank Details to the Electronic Payments System (EPS) and Settlement
Advisory through Electronic Mail – FSG 614
Evaluation of Documents and Processing for Grant of Cash Advance (CA) to BSP
Personnel – FSG 616
Processing and evaluation of Documents for Payment to Suppliers of Goods, Service
Providers, Contractors and other BSP Creditors – FSG 619
Settlement through SPC-Electronic Payment System (SPC-EPS) of Funded
Disbursement Voucher (DV) – FSG 624
Settlement of Funded Disbursement Voucher (DV) through Checks – FSG 626
Processing of Documents for Reimbursement of Claims – FSG 627
Preparation of Request for Foreign Exchange Service (RFES) through Letter of Credit
– FSG 632
Processing of Negotiated Documents for Letter of Credit Transaction – FSG 635
Issuance of Order of Payment – FSG 637
REGIONAL OPERATIONS AND ADVOCACY SECTOR
External Services
Interview request for BSP Spokespersons from Media Organizations –
Communication Office (CO) 642
Interview request for the BSP Governor from Media Organizations – CO 644
Request for Sponsorship/Support/Donation – CO 648

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CENTRAL BANKING AND ITS MONETARY POLICIES

BSP Online Buddy Chatbot – Consumer Protection and Market Conduct Office
(CPMCO) (Delisted) 653
Consumer Assistance Mechanism (Complex Transaction)– CPMCO (Delisted) 651
Consumer Assistance Mechanism (Highly Technical, i.e. subsequent/rejoinders and
inquiries)– CPMCO (Delisted) 651
Servicing and Verification of Currency Deposits of Banks – BSP Greater Manila
Regional Office (BSP GMRO) 655
Granting of Access to the Integrated Currency Management System – Cash Services
Portal - BSP GMRO 671
Cash and/or Check Payment from Clients of Various BSP Departments – BSP GMRO
679
Redemption of Notes and Coins – BSP GMRO 684
Over-the-Counter Acceptance of Check Deposits – BSP GMRO 691
Sale of Commemorative Notes and Coins – BSP GMRO 696
Servicing of Withdrawal Requests – BSP GMRO 702
Servicing of Requests for Cash Service Alliance (CSA) Manual Matching – BSP
GMRO 710
CSA Account Enrollment – BSP GMRO 714
Redemption of Mutilated Currencies and Referral to Currency Policy and Integrity
Department (CPID) – BSP Regional Office/Branch, CPID 720
Integrated Regional Information System (IRIS) User Registration and Recertification
– all BSP ROBs 731
Servicing and Verification of Currency Deposits of Banks – Other BSP ROBs 737
Servicing of Withdrawals of Client Banks – all ROBs except GMRO 748
Purchase of Gold from the General Public 762
NOTE: Unless otherwise indicated in the specific service, all applications filed
beyond the 8:00am-5:00pm business hours shall be considered as received on the next
working day.

Price Stability
​ ​ ​ ​ FB ShareTwitter Share
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Monetary Op​ erations

Monetary operations refer to the buying/selling of government securities,

lending/borrowing against underlying assets as collateral, acceptance of fixed-term
deposits, foreign exchange swaps, and the use of other monetary instruments of the
Bangko Sentral aimed at influencing the underlying demand and supply conditions for
central bank m​ oney.

On 3 June 2016, the BSP formally adopted an interest rate corridor (IRC) system as a
framework for conducting its monetary operations. The IRC is a system for guiding
short-term ​ marke​ t rates towards the BSP policy interest rate which is the
overnight reverse repurchase (RRP) rate. It consists of a rate at which the central
bank (CB) lends to banks (typically an overnight lending rate) and a rate at which it
takes deposits from them (deposit rate). In a standard corridor, the lending rate will be
above the CB target/policy rate (thereby forming an upper bound for short-term

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CENTRAL BANKING AND ITS MONETARY POLICIES

market rates), and the deposit rate will be below the CB policy rate (thereby forming
the lower bound).

Related info:

Press statement on IRC System

Primer on Monetary Operations under the IRC System
​
IRC

1. Open Market Operations (OMO)

Reverse Repurchase/Repurchase transactions

In a repurchase transaction, the BSP buys government securities (GS) from a bank
with a commitment to sell them back at a specified future date at a predetermined rate,
resulting in an expansionary effect on liquidity. Conversely, in a reverse repurchase
(RRP) operation, the BSP also acts as the seller of GS and the bank’s payment to the
BSP has a contractionary effect on liquidit​ y.

Issuance of BSP Securities

BSP Securities refer to negotiable monetary instruments issued by the BSP as part of
its structural liquidity management operations. The issuance of securities by the BSP
absorbs excess liquidity from the financial system by locking funds in longer-term
monetary instruments. Securities issued by the BSP, which may be in the form of bills
and/or bonds, can be traded in the secondary market.

Outright purchases and sales of securities

An outright contract involves direct purchase/sale of government securities by the
BSP from/to the market for the purpose of increasing/decreasing money supply on a
more permanent basis. In such a transaction, the parties do not commit to reverse the
transaction in the future, creating a more permanent effect on the banking system’s
level of money supply.

Foreign exchange swaps

Foreign exchange swaps refer to transactions involving the actual exchange of two
currencies (principal amount only) on a specific date at a rate agreed on the deal date
(the first leg), and a reverse exchange of the same two currencies at a date further in
the future (the second leg) at a rate (different from the rate applied to the first leg)
agreed on deal date.

​ 2. Acceptance of term deposits

​
The BSP, like other central banks, offers term deposits as one of the monetary tools to
absorb liquidity. In November 1998, the BSP offered the Special Deposit Accounts
(SDA) to banks and later expanded the access in April 2007 to trust entities of banks
and non-bank financial institutions. With the adoption of the IRC system in 2016, the
SDA facility was replaced by the term deposit facility (TDF).

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CENTRAL BANKING AND ITS MONETARY POLICIES

Term Deposit Facility (TDF)

The TDF is a liquidity absorption facility used by the BSP for active liquidity
management. Counterparties are asked to submit bids (volume and rate) for term
placements with the BSP. Currently, the BSP offers three tenors—seven, 14, and 28
days—in term deposit auction.
​
Auction Schedule:
Q3 2022
Latest Auction R​ ​ esult:
Release date: 06 July 2022
Historical Auction Results:
Download

​ 3. Standing Liquidity Facilities

The B​ SP offers standing liquidity (lending and deposit) windows to provide or

absorb liquidity at the initiative of the counterparty. These standing overnight
facilities are available on demand to qualified counterparties during BSP business
hours. The two standing facilities that form the upper and lower bound of the corridor
are set at ± 50 basis points (bps) around the policy rate (the overnight RRP rate under
the new IRC structure).

Overnight Deposit Facility

The standing overnight deposit facility will absorb any residual system liquidity to
prevent market interest rates from falling below the corridor. Interest rate for the O/N
deposit facility is the RRP rate minus 50 bps (0.50 percentage point). The interest rate
for the O/N deposit facility serves as a floor for the O/N interbank rate.

Overnight Lending Facility

The standing overnight lending facility provides collateralized overnight funding to
BSP counterparties to clear end-of-day imbalances. Interest rate for the O/N lending
facility is the RRP rate plus 50 bps (0.50 percentage point). The interest rate for the
O/N lending facility serves as a ceiling for the O/N interbank rate.
THE BSP: PAYING THE PRICE FOR STABILITY
The primary objective of the Bangko Sentral ng Pilipinas is to promote price and
financial
stability conducive to balanced and sustainable economic growth. It also seeks to
maintain
monetary stability and the convertibility of the peso.
In this connection, the BSP performs a wide range of functions involving money,
banking and
credit in the performance of this mandate for stabilization.
Today, the BSP is faced with the challenge of dealing with the consequences of strong
foreign
exchange inflows that have resulted in strengthening the Philippine peso against other
currencies. This phenomenon is not unique to the Philippines; the same challenge
faces other
central banks in economies that receive heavy foreign exchange inflows.
In response to the heavy capital inflows, the BSP has been implementing various
stabilization

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CENTRAL BANKING AND ITS MONETARY POLICIES

measures to moderate sharp currency movements. However, stability comes at a price.

The BSP
has been incurring heavy financial losses in its efforts to temper currency fluctuations
which
could be destabilizing.
The losses are generated primarily because of two reasons:
FIRST, AS THE PESO STRENGTHENS, THE BSP INCURS FOREIGN
EXCHANGE REVALUATION
LOSSES SINCE THE VALUE OF ITS FOREIGN EXCHANGE HOLDINGS
FALLS BELOW THEIR
ACQUISITION COST.
When there is a surge of foreign exchange into the country, the peso strengthens
against the
dollar.
A strong peso is good for importers and those with foreign debts. For instance, a
person would
need about P50 in 2001 to pay a $1 debt; today, that person would need only about
P41 to pay
a $1 debt.
On the other hand, a strong peso means that exporters and other forex earners such as
overseas Filipino workers get less pesos for every dollar they convert. At some time
in 2001,
every $1 remitted by an overseas Filipino could be exchanged at an average of about
P50.
Today, a dollar of remittance is worth about P41.00.
To moderate the strong gains in the value of the peso, the BSP buys foreign exchange
by
participating in the currency trade.
However, the BSP incurs foreign exchange losses when it buys foreign exchange at a
time when
the peso is appreciating. This is similar to stocking up on goods that are declining in
value while

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III. GUIDING PRINCIPLES OF MONETARY

ADMINISTRATION

What is monetary policy and why is it important?

Central banks use monetary policy to manage economic fluctuations and achieve
price stability, which means that inflation is low and stable. Central banks in many
advanced economies set explicit inflation targets. Many developing countries also are
moving to inflation targeting.

Central banks conduct monetary policy by adjusting the supply of money, usually
through buying or selling securities in the open market. Open market operations affect
short-term interest rates, which in turn influence longer-term rates and economic
activity. When central banks lower interest rates, monetary policy is easing. When
they raise interest rates, monetary policy is tightening.

What is monetary policy and why is it important

How has monetary policy been used recently

How has monetary policy been used recently?
After the global financial crisis that started in 2007, central banks in advanced
economies eased monetary policy by reducing interest rates until short-term rates
came close to zero, limiting options for additional cuts. Some central banks used
unconventional monetary policies, buying long-term bonds to further lower long-term
rates. Some even took short-term rates below zero. In response to the COVID-19
pandemic, central banks took actions to ease monetary policy, provide liquidity to
markets, and maintain the flow of credit. To mitigate stress in currency and bond
markets, many emerging market central banks used foreign exchange interventions,
and for the first time, asset purchase programs. More recently, in response to rapidly
growing inflation, central banks around the world have tightened monetary policy by
increasing interest rates.

Monetary policy and exchange rates

A country’s monetary policy is closely linked to its exchange rate regime. A country’s
interest rates affect the value of its currency, so those with a fixed exchange rate will
have less scope for an independent monetary policy than ones with a flexible
exchange rate. A fully flexible exchange rate regime supports an effective inflation-
targeting framework.

Monetary policy and exchange rates

monetary policy IMF

Why do countries have macroprudential policies?
The global financial crisis of 2007-2009 showed that countries needed to identify and
contain risks to the financial system as a whole. Many central banks adopted the use
of prudential tools and established macroprudential policy frameworks to promote
financial stability. Macroprudential tools are used to build buffers and contain
vulnerabilities that make the financial system susceptible to shocks. This reduces the

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probability that shocks to the financial system disrupt the provision of financial
services and cause serious negative consequences for the economy. Central banks are
well placed to conduct macroprudential policy because they are able to analyze
systemic risk and often are relatively independent and autonomous. Independence and
autonomy are important because the institution responsible for macroprudential policy
should be able to withstand political pressures and opposition from industry groups.

What role does the IMF play in monetary policy and central banking?
Monetary Policy and the IMF
The IMF promotes the effectiveness of central banks through its policy advice,
technical assistance, and data collection.

In bilateral policy advice, known as Article IV consultation, the IMF is in regular

dialogue with country central banks. It may provide advice on establishing effective
frameworks for monetary policy and macroprudential policy, as well as monetary
policy actions.

As part of its financial surveillance, the IMF’s Financial Sector Assessment Program
(FSAP) provides member countries with an evaluation of their financial systems and
advice on managing financial stability risks. The assessments often are contained in
technical notes, such as these for Finland, Netherlands, and Romania.

Technical assistance helps countries develop more effective institutions, legal

frameworks, and capacity. It may entail monetary policy, exchange rate regimes, or
macroprudential policies. It can also help countries move toward inflation targeting or
improve central bank operations, such as open market operations and foreign
exchange management.

The IMF’s Central Bank Transparency Code (CBT) helps central banks to guide their
transparency practices, as a prerequisite for central bank independence. The CBT
reviews, conducted by IMF staff, provide a view on central bank transparency and
facilitate more effective dialogue between the central bank and its various
stakeholders.

To inform policy development and research, the IMF works with its members to
create and maintain databases. For example:

The IMF tracks countries’ monetary policy arrangements (AREAER), central banks’
legal frameworks (CBLD), and monetary operations and instruments (MOID).

The IMF has an annual survey with details on macroprudential measures and
institutions, enabling comparisons across countries and over time.

The IMF’s comprehensive historical database of macroprudential measures (iMaPP)

integrates the latest survey information. IMF economists use the database to measure
policy effects. It is also freely available to researchers.

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The IMF has comprehensive, structured data on central banks’ direct market
interventions. For example, IMF economists used the Central Bank Interventions
Database (CBID) to track efforts to support financial markets during the COVID-19
pandemic.

Central banks use tools such as interest rates to adjust the supply of money to keep the
economy humming

Listen with Speechify

Monetary policy has lived under many guises. But however it may appear, it generally
boils down to adjusting the supply of money in the economy to achieve some
combination of inflation and output stabilization.

Most economists would agree that in the long run, output—usually measured by gross
domestic product (GDP)—is fixed, so any changes in the money supply only cause
prices to change. But in the short run, because prices and wages usually do not adjust
immediately, changes in the money supply can affect the actual production of goods
and services. This is why monetary policy—generally conducted by central banks
such as the U.S. Federal Reserve (Fed) or the European Central Bank (ECB)—is a
meaningful policy tool for achieving both inflation and growth objectives.

In a recession, for example, consumers stop spending as much as they used to;
business production declines, leading firms to lay off workers and stop investing in
new capacity; and foreign appetite for the country’s exports may also fall. In short,
there is a decline in overall, or aggregate, demand to which government can respond
with a policy that leans against the direction in which the economy is headed.
Monetary policy is often that countercyclical tool of choice.

Such a countercyclical policy would lead to the desired expansion of output (and
employment), but, because it entails an increase in the money supply, would also
result in an increase in prices. As an economy gets closer to producing at full capacity,
increasing demand will put pressure on input costs, including wages. Workers then
use their increased income to buy more goods and services, further bidding up prices
and wages and pushing generalized inflation upward—an outcome policymakers
usually want to avoid.

Twin objectives
The monetary policymaker, then, must balance price and output objectives. Indeed,
even central banks, like the ECB, that target only inflation would generally admit that
they also pay attention to stabilizing output and keeping the economy near full
employment. And at the Fed, which has an explicit “dual mandate” from the U.S.
Congress, the employment goal is formally recognized and placed on an equal footing
with the inflation goal.

Monetary policy is not the only tool for managing aggregate demand for goods and
services. Fiscal policy—taxing and spending—is another, and governments have used

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it extensively during the recent global crisis. However, it typically takes time to
legislate tax and spending changes, and once such changes have become law, they are
politically difficult to reverse. Add to that concerns that consumers may not respond
in the intended way to fiscal stimulus (for example, they may save rather than spend a
tax cut), and it is easy to understand why monetary policy is generally viewed as the
first line of defense in stabilizing the economy during a downturn. (The exception is
in countries with a fixed exchange rate, where monetary policy is completely tied to
the exchange rate objective.)

Independent policy
Although it is one of the government’s most important economic tools, most
economists think monetary policy is best conducted by a central bank (or some
similar agency) that is independent of the elected government. This belief stems from
academic research, some 30 years ago, that emphasized the problem of time
inconsistency. Monetary policymakers who were less independent of the government
would find it in their interest to promise low inflation to keep down inflation
expectations among consumers and businesses. But later, in response to subsequent
developments, they might find it hard to resist expanding the money supply,
delivering an “inflation surprise.” That surprise would at first boost output, by making
labor relatively cheap (wages change slowly), and would also reduce the real, or
inflation-adjusted, value of government debt. But people would soon recognize this
“inflation bias” and ratchet up their expectations of price increases, making it difficult
for policymakers ever to achieve low inflation.

To overcome the problem of time inconsistency, some economists suggested that

policymakers should commit to a rule that removes full discretion in adjusting
monetary policy. In practice, though, committing credibly to a (possibly complicated)
rule proved difficult. An alternative solution, which would still shield the process
from politics and strengthen the public’s confidence in the authorities’ commitment to
low inflation, was to delegate monetary policy to an independent central bank that
was insulated from much of the political process—as was the case already in a
number of economies. The evidence suggests that central bank independence is
indeed associated with lower and more stable inflation.

Conducting monetary policy

How does a central bank go about changing monetary policy? The basic approach is
simply to change the size of the money supply. This is usually done through open-
market operations, in which short-term government debt is exchanged with the private
sector. If the Fed, for example, buys or borrows Treasury bills from commercial banks,
the central bank will add cash to the accounts, called reserves, that banks are required
keep with it. That expands the money supply. By contrast, if the Fed sells or lends
treasury securities to banks, the payment it receives in exchange will reduce the
money supply.

While many central banks have experimented over the years with explicit targets for
money growth, such targets have become much less common, because the correlation
between money and prices is harder to gauge than it once was. Many central banks
have switched to inflation as their target—either alone or with a possibly implicit goal
for growth and/or employment.

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When a central bank speaks publicly about monetary policy, it usually focuses on the
interest rates it would like to see, rather than on any specific amount of money
(although the desired interest rates may need to be achieved through changes in the
money supply). Central banks tend to focus on one “policy rate”—generally a short-
term, often overnight, rate that banks charge one another to borrow funds. When the
central bank puts money into the system by buying or borrowing securities,
colloquially called loosening policy, the rate declines. It usually rises when the central
bank tightens by soaking up reserves. The central bank expects that changes in the
policy rate will feed through to all the other interest rates that are relevant in the
economy.

Transmission mechanisms
Changing monetary policy has important effects on aggregate demand, and thus on
both output and prices. There are a number of ways in which policy actions get
transmitted to the real economy (Ireland, 2008).

The one people traditionally focus on is the interest rate channel. If the central bank
tightens, for example, borrowing costs rise, consumers are less likely to buy things
they would normally finance—such as houses or cars—and businesses are less likely
to invest in new equipment, software, or buildings. This reduced level of economic
activity would be consistent with lower inflation because lower demand usually
means lower prices.

But this is not the end of the story. A rise in interest rates also tends to reduce the net
worth of businesses and individuals—the so-called balance sheet channel—making it
tougher for them to qualify for loans at any interest rate, thus reducing spending and
price pressures. A rate hike also makes banks less profitable in general and thus less
willing to lend—the bank lending channel. High rates normally lead to an
appreciation of the currency, as foreign investors seek higher returns and increase
their demand for the currency. Through the exchange rate channel, exports are
reduced as they become more expensive, and imports rise as they become cheaper. In
turn, GDP shrinks.

Monetary policy has an important additional effect on inflation through

expectations—the self-fulfilling component of inflation. Many wage and price
contracts are agreed to in advance, based on projections of inflation. If policymakers
hike interest rates and communicate that further hikes are coming, this may convince
the public that policymakers are serious about keeping inflation under control. Long-
term contracts will then build in more modest wage and price increases over time,
which in turn will keep actual inflation low.

When rates can go no lower

After the onset of the global financial crisis in 2008, central banks worldwide cut
policy rates sharply—in some cases to zero—exhausting the potential for cuts.
Nonetheless, they have found unconventional ways to continue easing policy.

One approach has been to purchase large quantities of financial instruments from the
market. This so-called quantitative easing increases the size of the central bank’s
balance sheet and injects new cash into the economy. Banks get additional reserves
(the deposits they maintain at the central bank) and the money supply grows.

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A closely related option, credit easing, may also expand the size of the central bank’s
balance sheet, but the focus is more on the composition of that balance sheet—that is,
the types of assets acquired. During the recent crisis, many specific credit markets
became blocked, and the result was that the interest rate channel did not work. Central
banks responded by targeting those problem markets directly. For instance, the Fed
set up a special facility to buy commercial paper (very short-term corporate debt) to
ensure that businesses had continued access to working capital. It also bought
mortgage-backed securities to sustain housing finance.

Some argue that credit easing moves monetary policy too close to industrial policy,
with the central bank ensuring the flow of finance to particular parts of the market.
But quantitative easing is no less controversial. It entails purchasing a more “neutral”
asset, like government debt, but it moves the central bank toward financing the
government’s fiscal deficit, possibly calling its independence into question.

Monetary policy, financial stability and the strategy review

Our job is to keep prices stable. We know that a stable financial system is good for
price stability. Stable prices are good for the financial system too, as people and
businesses are better able to plan and invest knowing prices will not change by much
over time. That is why information about the health of the financial system plays an
important role in our analysis and decisions.

Why was financial stability part of our strategy review?

The financial system is important
The financial system is a key part of our economy. It includes, for example, banks,
insurance companies and financial markets. The financial system helps money flow
through the economy when and to where it is needed. For this essential function to
work well, we need the financial system to be stable. While other authorities are
primarily responsible for this task, we also keep an eye on the stability of this system.

Financial stability is good for price stability, and vice versa

Our job is to keep prices stable. We do that using our monetary policy, which works
through the financial system. When banks and markets are healthy, our monetary
policy works better. In times of financial instability, it becomes harder for us to keep
prices stable. Price stability is good for the financial system. People and businesses
are better able to plan and invest in the knowledge that prices will not change by
much over time.

The impact of the 2008 financial crisis

The financial crisis in 2008 showed just how important a stable financial system is.
The crisis disrupted the flow of money across the economy. Financial markets became
very unstable. It was very difficult to borrow money, and people and businesses
suffered greatly. To help keep prices stable, we cut our interest rates and began
introducing new tools. These decisions, alongside those of other policymakers, helped
get the economy and the financial system back on track.

How does monetary policy affect the financial system?

By adjusting interest rates, we can influence prices

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Monetary policy reaches people, businesses and governments through the financial
system. By adjusting our interest rates, for instance, we can influence how expensive
it is for people and businesses to borrow money from banks. That affects how much
people and businesses spend and invest. This in turn influences how much things cost
in the economy.

Very low interest rates and financial stability

Sometimes the financial system and monetary policy can affect each other in
unwanted ways. The case of very low interest rates is a good example. Very low
interest rates are helpful for price stability when the economy is doing badly. This has
been the case in recent years. However, interest rates that are too low for too long may
have unintended side effects on financial stability.

Very low interest rates may encourage some people and businesses to take on more
debt than they can handle. Banks would not earn as much from making loans. Savers
would not make much of a return on their savings. People and businesses may take
riskier decisions. As a result, the financial system can become more unstable.

We keep an eye on side effects

We are watching out for any unwanted side effects of our monetary policy. While
rules by other authorities to encourage responsible behaviour in financial markets are
the key response, we also adjust some of our own tools to keep these side effects
small.

On balance, unwanted side effects have been offset by good ones. For instance, banks
might earn less now from lending money. But our monetary policy also helps banks
because it stabilises the economy. That keeps people in jobs, allowing them to pay
back their loans to banks or to take out new ones.

How should we take the importance of financial stability into account?

Rules are the first line of defence
Other authorities are responsible for ensuring financial stability in the euro area. Their
rules promoting a more stable financial system are the first line of defence against the
risk of another financial crisis.

Two sides of the same coin

But there is also a clear case for considering financial stability when we make our
monetary policy decisions. That is because financial crises can put price stability in
danger. Financial stability and price stability are two sides of the same coin. We
always need to keep both sides in mind. That is why information about the financial
system will always play an important role in our analysis and decisions.

1. Risk Management

Risk management is a fundamental principle in monetary administration. It involves

identifying, assessing, and mitigating financial risks to ensure stability and
profitability. A balance between risk and return is crucial when making financial
decisions. Investing money upfront can lead to the potential to make more money, but
it also involves taking calculated risks. Effective risk management strategies include

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diversification, hedging, and setting risk limits. Diversification involves spreading

investments across various assets, sectors, and geographic regions to reduce the
impact of any single investment's poor performance. Hedging uses financial
instruments, such as derivatives, to offset potential losses in one asset by gains in
another. Setting risk limits involves establishing thresholds for acceptable levels of
risk and ensuring that these limits are adhered to in financial decision-making. By
managing risks effectively, monetary authorities can protect the financial system from
unexpected shocks and ensure sustainable growth.

2. Accountability

Accountability is essential for ensuring that those who manage money on behalf of
others are good stewards of the funds. This principle involves establishing clear roles
and responsibilities, setting performance standards, and implementing oversight
mechanisms. People who manage money should be protected from being tempted to
use the funds for their own purposes. Accountability measures include regular audits,
transparent reporting, and ethical guidelines. Regular audits involve independent
reviews of financial records to ensure accuracy and compliance with regulations.
Transparent reporting involves providing clear and accessible information about
financial activities, decisions, and outcomes. Ethical guidelines set standards for
behavior and decision-making to ensure that individuals act in the best interests of
those they represent. By promoting accountability, monetary authorities can build
trust and confidence in the financial system.

3. Cash Flow

Cash flow is the primary concern in measuring wealth or value, not accounting profit.
This principle emphasizes the importance of liquidity and the ability to meet financial
obligations. The return is earned on the cash that is invested, and effective cash flow
management ensures that funds are available when needed. Techniques for managing
cash flow include forecasting, budgeting, and optimizing working capital. Forecasting
involves predicting future cash inflows and outflows based on historical data and
expected changes in the business environment. Budgeting involves planning and
controlling spending to ensure that cash resources are used efficiently and effectively.
Optimizing working capital involves managing current assets and liabilities, such as
inventory and accounts receivable, to ensure that there is enough liquidity to meet
short-term obligations. By focusing on cash flow, monetary authorities can ensure the
smooth operation of financial institutions and support economic stability.

4. Internal Controls

Internal controls are mechanisms that promote operational efficiency, complete and
reliable financial and regulatory reporting, and compliance with applicable policies,
laws, and regulations. These controls include procedures for safeguarding assets,
verifying transactions, and monitoring compliance. Effective internal controls help
prevent fraud, errors, and inefficiencies. They also ensure that financial information is
accurate and reliable, which is essential for decision-making. Key components of
internal controls include segregation of duties, authorization procedures, and periodic
reviews. Segregation of duties involves dividing responsibilities among different
individuals to prevent conflicts of interest and reduce the risk of fraud. Authorization

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procedures involve setting rules for approving transactions and ensuring that only
authorized personnel can execute them. Periodic reviews involve regular assessments
of internal controls to identify and address any weaknesses. By implementing robust
internal controls, monetary authorities can enhance the integrity and stability of the
financial system.

5. Time Value of Money

The time value of money is a principle that recognizes that money loses value as time
passes. This concept is based on the idea that a dollar today is worth more than a
dollar in the future due to its potential earning capacity. Monetary authorities use this
principle to make informed investment decisions, calculate present and future values,
and assess the profitability of projects. Techniques such as discounting and
compounding are used to account for the time value of money. Discounting involves
reducing the future value of cash flows to reflect their present value, taking into
account the time value of money. Compounding involves increasing the present value
of cash flows to reflect their future value, based on the potential returns from
investing the money. By understanding this principle, monetary authorities can
optimize their financial strategies and maximize returns.

6. Diversification

Diversification is important for maximizing employment benefits, paying attention to

taxes, and planning for the unexpected. This principle involves spreading investments
across different assets, sectors, and geographic regions to reduce risk. Diversification
helps protect against losses in any single investment and enhances overall portfolio
performance. Monetary authorities use diversification to manage risks, achieve
balanced growth, and support economic resilience. By diversifying investments, they
can ensure that the financial system remains stable and adaptable to changing
conditions. Diversification strategies may include investing in a mix of stocks, bonds,
real estate, and other asset classes to achieve a balance between risk and return.
Additionally, diversification can involve geographic diversification, which spreads
investments across different countries and regions to reduce the impact of local
economic fluctuations.

1. Monetary Stability
Monetary stability is the bedrock of an effective monetary administration system. It
involves maintaining stable prices and controlling inflation to ensure a predictable
economic environment. Central banks, like the Bangko Sentral ng Pilipinas (BSP),
use various tools to achieve this goal. One primary tool is interest rate adjustments,
which influence the cost of borrowing and saving, thereby affecting consumer
spending and investment. Open market operations involve the buying and selling of
government securities to control the money supply. By doing so, central banks can
inject liquidity into the system or withdraw it, thus influencing overall economic
activity. Reserve requirements mandate the amount of funds that banks must hold in
reserve, which directly impacts their ability to lend. By maintaining monetary stability,
central banks create an environment where businesses can plan for the future,

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consumers can make informed financial decisions, and overall economic growth is
supported.

2. Fiscal Discipline
Fiscal discipline is crucial for the government's ability to manage its budget and
expenditures responsibly. This principle involves maintaining a balance between
revenue and spending to avoid excessive debt and ensure long-term economic
stability. Governments achieve fiscal discipline through prudent budgeting,
expenditure controls, and effective revenue collection. By avoiding budget deficits
and excessive borrowing, governments can maintain investor confidence, reduce the
cost of borrowing, and prevent economic crises. Fiscal discipline also involves
making strategic investments in infrastructure, education, and healthcare to support
sustainable economic growth. This principle ensures that government spending is
efficient, targeted, and aligned with long-term economic goals.

3. Transparency and Accountability

Transparency and accountability are essential for building trust in monetary
institutions. Central banks and monetary authorities must provide clear and accurate
information about their policies, decisions, and operations. This includes publishing
regular reports, conducting audits, and engaging with the public and stakeholders.
Transparency involves openly communicating the rationale behind monetary policy
decisions, such as interest rate changes, to ensure that market participants understand
the central bank's objectives. Accountability ensures that central banks are answerable
for their actions and that there are mechanisms in place to evaluate their performance.
This principle helps to build credibility, reduce uncertainty, and enhance the
effectiveness of monetary policies.

4. Independence of Central Banks

The independence of central banks is a critical principle that allows these institutions
to make unbiased and effective decisions. Central banks must operate independently
from political influence to focus on long-term economic goals rather than short-term
political interests. Independence ensures that monetary policies are based on sound
economic principles and are not influenced by political pressures. Central banks
achieve independence through legal frameworks that protect their decision-making
authority and financial autonomy. By operating independently, central banks can
maintain price stability, control inflation, and support sustainable economic growth.
This principle is essential for maintaining investor confidence and ensuring the
credibility of monetary policies.

5. Effective Regulation and Supervision

Effective regulation and supervision of financial institutions are crucial for
maintaining the stability and integrity of the financial system. This principle involves
setting and enforcing rules and standards for banks, insurance companies, and other
financial entities to prevent fraud, ensure solvency, and protect consumers. Regulators
conduct regular inspections, monitor compliance with regulations, and take corrective
actions when necessary. Effective supervision helps to identify and mitigate risks,
such as excessive leverage or inadequate capital, that could threaten the stability of
the financial system. By ensuring that financial institutions operate safely and soundly,
regulators contribute to overall economic stability and protect the interests of
consumers.

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6. Financial Inclusion
Financial inclusion aims to provide access to financial services for all segments of
society, including underserved and marginalized populations. This principle ensures
that everyone has the opportunity to participate in the economy, save money, and
access credit, which contributes to overall economic growth and stability. Financial
inclusion initiatives may include promoting digital financial services, supporting
microfinance institutions, and implementing financial literacy programs. By
expanding access to financial services, monetary authorities can empower individuals
and businesses, reduce poverty, and enhance economic opportunities. Financial
inclusion also involves addressing barriers, such as high costs or lack of
documentation, that prevent people from accessing formal financial services.

7. International Cooperation
International cooperation is vital for addressing global economic challenges and
ensuring the stability of the international monetary system. Central banks and
monetary authorities collaborate with international organizations, such as the
International Monetary Fund (IMF) and the World Bank, to coordinate policies, share
information, and provide financial assistance when needed. International cooperation
involves participating in global forums, such as the G20, to discuss and address
common economic issues. By working together, countries can develop coordinated
responses to financial crises, promote global economic growth, and enhance financial
stability. This principle also involves adhering to international standards and best
practices in monetary policy and financial regulation.

8. Crisis Management
Effective crisis management involves preparing for and responding to financial crises
to minimize their impact on the economy. This principle includes developing
contingency plans, maintaining adequate reserves, and implementing timely and
appropriate measures to stabilize the financial system during periods of stress. Crisis
management may involve providing emergency liquidity to banks, implementing
capital controls, or coordinating with other central banks to provide cross-border
support. By being prepared for crises, central banks can act swiftly and decisively to
prevent systemic failures and restore confidence in the financial system. This
principle also involves learning from past crises to improve future preparedness and
resilience.

9. Sustainable Economic Growth

Monetary administration should support sustainable economic growth by promoting
policies that encourage investment, innovation, and productivity. This principle
involves creating a favorable business environment, ensuring access to credit, and
fostering economic diversification. Sustainable economic growth requires balancing
short-term economic objectives with long-term environmental and social goals.
Central banks can support sustainable growth by implementing monetary policies that
promote price stability, reduce uncertainty, and encourage investment. Additionally,
monetary authorities can work with other government agencies to develop and
implement structural reforms that enhance the economy's productive capacity and
competitiveness.

10. Public Interest and Public Choice

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Monetary policies should be designed to serve the public interest and reflect the
preferences and needs of the population. This principle emphasizes the importance of
considering the social and economic impact of monetary decisions and ensuring that
they benefit the broader society. Public choice involves engaging with stakeholders,
including businesses, consumers, and community organizations, to understand their
perspectives and priorities. By incorporating public input into monetary policy
decisions, central banks can develop more effective and inclusive policies. This
principle also involves promoting financial literacy and education to empower
individuals to make informed financial decisions.

11. Flexibility and Adaptability

Monetary authorities must be flexible and adaptable to changing economic conditions
and emerging challenges. This principle involves continuously monitoring the
economy, adjusting policies as needed, and being open to new ideas and approaches.
Flexibility allows central banks to respond quickly to unexpected events, such as
financial crises or economic shocks, and to implement innovative solutions.
Adaptability involves fostering a culture of continuous learning and improvement,
encouraging research and analysis, and embracing technological advancements. By
being flexible and adaptable, monetary authorities can navigate uncertainties and
support long-term economic stability and growth.

12. Stability and Balance in Human Resources

Maintaining stability and balance in human resources is essential for effective
monetary administration. This principle involves ensuring that monetary institutions
have skilled and experienced personnel, providing ongoing training and development,
and fostering a positive work environment. Central banks must attract and retain
talented professionals with expertise in economics, finance, and related fields. This
involves offering competitive salaries, career development opportunities, and a
supportive organizational culture. Stability in human resources also involves
succession planning and leadership development to ensure continuity and effective
decision-making. By investing in their workforce, monetary institutions can enhance
their capacity to achieve their policy objectives.

13. Awareness and Accountability Among Citizens

Promoting awareness and accountability among citizens is crucial for building trust
and ensuring the effectiveness of monetary policies. This principle involves educating
the public about monetary issues, encouraging informed participation in economic
decision-making, and holding monetary authorities accountable for their actions.
Public awareness campaigns can help demystify complex monetary concepts, such as
inflation targeting or exchange rate policies, and explain their impact on everyday life.
Accountability mechanisms, such as legislative oversight or independent reviews,
ensure that central banks operate transparently and are held responsible for their
performance. By engaging with citizens and promoting accountability, monetary
authorities can build public confidence and support for their policies.

14. Coordination of Credit Policies by Government Institutions

Coordination of credit policies by government institutions ensures that monetary and
fiscal policies are aligned and mutually reinforcing. This principle involves
collaboration between central banks, finance ministries, and other relevant agencies to
achieve common economic goals. Coordinated credit policies can help address

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specific economic challenges, such as promoting investment in priority sectors or

supporting small and medium-sized enterprises (SMEs). This principle also involves
ensuring that government credit programs complement rather than compete with
private sector lending. By coordinating credit policies, government institutions can
enhance the effectiveness of monetary interventions and support overall economic
stability and growth.

15. Selective Regulation of Bank Operations

Selective regulation of bank operations involves implementing targeted measures to
address specific risks and vulnerabilities in the financial system. This principle
includes setting capital requirements, conducting stress tests, and monitoring the
activities of systemically important financial institutions. Selective regulation allows
regulators to focus on areas of highest risk and to implement tailored interventions
that address particular issues. For example, higher capital requirements for banks
engaged in risky activities can help reduce the likelihood of financial instability.
Stress tests simulate adverse economic scenarios to assess the resilience of banks and
identify potential weaknesses. By implementing selective regulation, monetary
authorities can enhance the safety and soundness of the financial system.

16. Open Market Operations

Open market operations are a key tool used by central banks to control the money
supply and influence interest rates. This principle involves buying and selling
government securities in the open market to regulate liquidity and achieve monetary
policy objectives. When a central bank buys securities, it injects money into the
banking system, increasing liquidity and lowering interest rates. Conversely, when it
sells securities, it withdraws money
[ REPUBLIC ACT NO. 11211, February 14, 2019 ]
AN ACT AMENDING REPUBLIC ACT NUMBER 7653, OTHERWISE KNOWN
AS "THE NEW CENTRAL BANK ACT", AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled:

SECTION 1. Section 2 of Republic Act No. 7653, otherwise known as "The New
Central Bank Act", is hereby amended to read as follows:

"Sec. 2. Creation of the Bangko Sentral. -There is hereby established an independent

central monetary authority, which shall be a body corporate known as the Bangko
Sentral ng Filipinos, hereafter referred to as the Bangko Sentral.

"The capital of the Bangko Sentral shall be Two hundred billion pesos
(P200,000,000,000), to be fully subscribed by the Government of the Republic of the
Philippines, hereafter referred to as the Government: Provided, That the increase in
capitalization shall be funded solely from the declared dividends of the Bangko
Sentral in favor of the National Government. For this purpose, any and all declared
dividends of the Bangko Sentral in favor of the National Government shall be
deposited in a special account in the General Fund, and earmarked for the payment of
Bangko Sentral's increase in capitalization. Such payment shall be released and

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disbursed immediately and shall continue until the increase in capitalization has been
fully paid."

SEC. 2. Section 3 of the same Act is hereby amended to read as follows:

"SEC. 3. Responsibility and Primary Objective. — The Bangko Sentral shall provide
policy directions in the areas of money, banking, and credit. It shall have supervision
over the operations of banks and exercise such regulatory and examination powers as
provided in this Act and other pertinent laws over the quasi-banking operations of
non-bank financial institutions. As may be determined by the Monetary Board, it shall
likewise exercise regulatory and examination powers over money service businesses,
credit granting businesses, and payment system operators. The Monetary Board is
hereby empowered to authorize entities or persons to engage in money service
businesses.

"The primary objective of the Bangko Sentral is to maintain price stability conducive
to a balanced and sustainable growth of the economy and employment. It shall also
promote and maintain monetary stability and the convertibility of the peso.

"The Bangko Sentral shall promote financial stability and closely work with the
National Government, including, but not limited to, the Department of Finance,
Securities and Exchange Commission, the Insurance Commission, and the Philippine
Deposit Insurance Corporation.

"The Bangko Sentral shall oversee the payment and settlement systems in the
Philippines, including critical financial market infrastructures, in order to promote
sound and prudent practices consistent with the maintenance of financial stability.

"In the attainment of its objectives, the Bangko Sentral shall promote broad and
convenient access to high quality financial services and consider the interest of the
general public."

SEC. 3. Section 11 of the same Act is hereby amended to read as follows:

"SEC. 11. Meetings. - The Monetary Board shall meet at least once a week. The
Board may be called to a meeting by the Governor of the Bangko Sentral or by two (2)
other members of the Board.

"The presence of four (4) members shall constitute a quorum: Provided, That in all
cases the Governor or his duly designated alternate shall be among the four (4)
members.

"Unless otherwise provided in this Act, all decisions of the Monetary Board shall
require the concurrence of at least four (4) members.

"The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in microfilm.

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"The meetings of the Monetary Board may be conducted through modern

technologies such as, but not limited to, teleconferencing and videoconferencing."

SEC. 4. Section 15(e)of the same Act is hereby amended to read as follows:

"SEC. 15. Exercise of Authority. - In the exercise of its authority, the Monetary Board
shall:

"x x x

"(e) indemnify its members and other officials of the Bangko Sentral, including
personnel of the departments performing supervision and examination functions
against all costs and expenses reasonably incurred by such persons in connection with
any civil or criminal action, suit or proceedings to which he may be, or is, made a
party by reason of the performance of his functions or duties, unless he is finally
adjudged in such action or proceeding to be liable for willful violation of this Act,
performed in evident bad faith or with gross negligence.

"In the event of a settlement or compromise, indemnification shall be provided only in

connection with such matters covered by the settlement as to which the Bangko
Sentral is advised by external counsel that the person to be indemnified did not
commit willful violation of this Act, performed in evident bad faith or with gross
negligence.

"The costs and expenses incurred in defending the aforementioned action, suit or
proceeding may be paid by the Bangko Sentral in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf of the
member, officer, or employee to repay the amount advanced should it ultimately be
determined by the Monetary Board that he is not entitled to be indemnified as
provided in this subsection."

SEC. 5. Section 16 of the same Act is hereby amended to read as follows:

"SEC. 16. Responsibility. — The general rule and the exception therefrom on the
liability of public officers as provided in Sections 38 and 39 of Chapter 9, Book 1 of
the Revised Administrative Code of 1987 shall apply to the members of the Monetary
Board and other personnel of the Bangko Sentral.

"Similar responsibility shall apply to members of the Monetary Board, and other
personnel of the Bangko Sentral for: (1) the disclosure of any information of a
confidential nature, or any information on the discussions or resolutions of the

Monetary Board, or about the confidential operations of the Bangko Sentral, unless
the disclosure is in connection with the performance of official functions with the
Bangko Sentral, or is with prior authorization of the Monetary Board or the Governor;
or (2) the use of such information for personal gain or to the detriment of the
Government, the Bangko Sentral or third parties: Provided, however, That any data or
information required to be submitted to the President and/or the Congress, or to be
published under the provisions of this Act shall not be considered confidential.

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"Unless the actions or omissions of the Bangko Sentral, members of the Monetary
Board and its other personnel are finally adjudged to be in willful violation of this Act,
performed in evident bad faith or with gross negligence, they are held free and
harmless to the fullest extent permitted by law from any liability, and they shall be
indemnified for any and all liabilities, losses, claims, demands, damages, deficiencies,
costs and expenses of whatsoever kind and nature that may arise in connection with
the exercise of their powers and performance of their duties and functions."

SEC. 6. Section 21 of the same Act is hereby amended to read as follows:

"SEC. 21. Deputy Governors. - The Governor of the Bangko Sentral, with the
approval of the Monetary Board, shall appoint not more than five (5) Deputy
Governors who shall perform duties as may be assigned to them by the Governor and
the Board.

"In the absence of the Governor, a Deputy Governor designated by the Governor shall
act as chief executive of the Bangko Sentral and shall exercise the powers and
perform the duties of the Governor. Whenever the Governor is unable to attend
meetings of government boards or councils in which he is an ex officio member
pursuant to provisions of special laws, a Deputy Governor as may be designated by
the Governor shall be vested with authority to participate and exercise the right to
vote in such meetings."

SEC. 7. Section 23 of the same Act is hereby amended to read as follows:

"SEC. 23. Authority to Obtain Data and Information. — The Bangko Sentral shall
have the authority to require from any person or entity, including government offices
and instrumentalities, or government-owned or -controlled corporations, any data, for
statistical and policy development purposes in relation to the proper discharge of its
functions and responsibilities: Provided, That disaggregated data gathered are subject
to prevailing confidentiality laws. The Bangko Sentral through lie Governor or in bis
absence, a duly authorized representative shall have the power to issue a subpoena for
the production of the books and records for the aforesaid purpose. Those who refuse
the subpoena without justifiable cause, or who refuse to supply the Bangko Sentral
with data required, shall be subject to punishment for contempt in accordance with the
provisions of the Rules of Court.

"The authority of the Bangko Sentral to require data from banks shall continue to be
exercised pursuant to its supervisory powers set forth in this Act and other applicable
laws.

"Data on individuals and firms, other than banks, gathered by the Bangko Sentral
shall not be made available to any person or entity outside of the Bangko Sentral
whether public or private except under order of the court or under such conditions as
may be prescribed by the Monetary Board: Provided, however, That the collective
data on firms may be released to interested persons or entities: Provided, finally, That
in the case of data on banks, the provisions of Section 27 of this Act shall apply."

SEC. 8. Section 25 of the same Act is hereby amended to read as follows:

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"SEC. 25. Supervision and Examination. — The Bangka Sentral shall have
supervision over, and conduct regular or special examinations of banking institutions
and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

"For purposes of this section, a subsidiary means a corporation more than fifty percent
(50%) of the voting stock of which is directly or indirectly owned, controlled or held
with power to vote by a bank or quasi-bank and an affiliate means a corporation the
voting stock of which, to the extent of fifty percent (50%) or less, is owned by a bank
or quasi-bank or which is related or linked directly or indirectly to such institution or
intermediary through common stockholders or such other factors as may be
determined by the Monetary Board.

"The Bangko Sentral shall have regulatory authority over, and conduct regular or
special examinations of, entities which under this Act or by special laws are subject to
its jurisdiction.

"The Bangko Sentral shall establish a mechanism for issues arising from bank
examinations. It shall be independent and reports directly to the Monetary Board,
without prejudice to the authority of the Bangko Sentral and its Monetary Board to
take enforcement and supervisory actions against supervised entities.

'The department heads and the examiners of the supervising and/or examining
departments are hereby authorized to administer oaths to any director, officer, or
employee of any institution under their respective supervision or subject to their
examination, and to compel the presentation of all books, documents, papers or
records necessary in their judgment to ascertain the facts relative to the true condition
of any institution as well as the books and records of persons and entities relative to or
in connection with the operations, activities or transactions of the institution under
examination, subject to the provision of existing laws protecting or safeguarding the
secrecy or confidentiality of bank deposits as well as investments of private persons,
natural or juridical, in debt instruments issued by the Government.

"No restraining order or injunction shall be issued by the court enjoining the Bangko
Sentral from examining any institution subject to supervision or examination by the
Bangko Sentral, unless there is convincing proof that the action of the Bangko Sentral
is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
clerk or judge of the court in which the action is pending a bond executed in favor of
the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule 58
of the New Rules of Court insofar as they are applicable and not inconsistent with the
provisions of this section shall govern the issuance and dissolution of the restraining
order or injunction contemplated in this section."

SEC. 9. A new section entitled Section 25-A is hereby included in the same Act to
read as follows:

"SEC. 25-A. Authority to Approve Transfer of Shares. - Transfers or acquisitions, or a

series thereof, of at least ten percent (10%) of the voting shares in banks or quasi-
banks shall require the prior approval of the Bangko Sentral. The selling or conveying
stockholder shall submit such transfer or acquisition for approval by the Bangko
Sentral within such period as may be prescribed by the Monetary Board. In approving

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such transfers or acquisitions, regard shall be given by the Bangko Sentral to the
fitness of the incoming stockholders as may be indicated in their integrity, reputation
and financial capacity. Without Bangko Sentral approval, no such transfer or
acquisition shall have legal effect nor shall the same be recognized in the books of the
institution or by any government agency, and the transfer or-stockholders shall remain
accountable and responsible therefor. Transfer of actual control or management of the
institution to the new stockholders or their representatives prior to Bangko Sentral
approval shall make the -transfer or, the transferee and any person responsible
therefor liable under Sections 36 and 37 of this Act.Notwithstanding any provision of
law to the contrary, the Bangko Sentral may share with the Philippine Deposit
Insurance Corporation any information that the Bangko Sentral may obtain pertaining
to transfer or acquisition of shares or series of transfers or acquisition of shares in
banks and quasi-banks."

SEC. 10. Section 27(d) of the same Act is hereby amended to read as follows:

"SEC. 27. Prohibitions. - In addition to the prohibitions found in Republic Act Nos.
3019 and 6713, personnel of the Bangko Sentral are hereby prohibited from:

"x x x

"(d) borrowing from any institution subject to supervision or examination by the

Bangko Sentral unless said borrowing is transacted on an arm's length basis, fully
disclosed to the Monetary Board, and shall be subject to such rules and regulations as
the Monetary Board may prescribe."

SEC. 11. Section 28 of the same Act is hereby amended to read as follows:

"SEC. 28. Examination and Fees. - The supervising and examining department head,
personally or by deputy, shall examine the operations of every bank and quasi-bank,
including their subsidiaries and affiliates engaged in allied activities, and other entities
which under this Act or special laws are subject to Bangko Sentral supervision, in
accordance with the guidelines set by the Monetary Board taking into consideration
sound and prudent practices: Provided, That there shall be an interval of at least
twelve (12) months between regular examinations: Provided, further, That the
Monetary Board, by an affirmative vote of at least five (5) members, may authorize a
special examination if the circumstances warrant.

"The institution concerned shall afford to the head of the appropriate supervising and
examining departments and to his authorized deputies full opportunity to examine its
books and records, cash and assets and general condition and review its systems and
procedures at any time during business hours when requested to do so by the Bangko
Sentral: Provided, however, That none of the reports and other papers relative to such
examinations shall be open to inspection by the public except insofar as such publicity
is incidental to the proceedings hereinafter authorized or is necessary for the
prosecution of violations in connection with the business of such institutions.

"Supervised institutions shall pay to the Bangko Sentral, no later than May 31 of each
year, an annual supervision fee as may be prescribed by the Monetary Board. In

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determining the amount of the annual supervision fee, the Monetary Board Shall
consider the costs of supervision."
SEC. 12. A new section entitled Section 28-A is hereby included in the same Act to
read as follows:

"SEC. 28-A. Bangko Sentral Coordination. -The suspension or revocation of any

government license necessary for the operation of Bangko Sentral-supervised entity
must be done only with prior consultation with the Bangko Sentral."

SEC. 13. Section 30 of the same Act is hereby amended to read as follows:

"SEC. 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of

the head of the supervising or examining department, the Monetary Board finds that a
bank or quasi-bank:

"(a) has notified the Bangko Sentral or publicly announced a unilateral closure, or has
been dormant for at least sixty (60) days or in any manner has suspended the payment
of its deposit/deposit substitute liabilities, or is unable to pay its liabilities as they
become due in the ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial panic in the
banking community;

"(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or

"(c) cannot continue in business without involving probable losses to its depositors or
creditors; or

"(d) has willfully violated a cease and desist order under Section 37 of this Act that
has become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary Board may
summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance
Corporation (PDIC) as receiver in the case of banks and direct the PDIC to proceed
with the liquidation of the closed bank pursuant to this section and the relevant
provisions of Republic Act No. 3591, as amended. The Monetary Board shall notify
in writing, through the receiver, the board of directors of the closed bank of its
decision.

"The actions of the Monetary Board taken under this section or under Section 29 of
this Act shall be final and executory^ and may not be restrained or set aside by the
court except on petition for certiorari on the ground that the action taken was in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. The petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing receivership,
liquidation or conservatorship. The designation of a conservator under Section 29 of
this Act or the appointment of a receiver under this section shall be vested exclusively

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with the Monetary Board. Furthermore, the designation of a conservator is not a

precondition to the designation of a receiver.

"The authority of the Monetary Board to summarily and without need for prior
hearing forbid the bank or quasi-bank from doing business in the Philippines as
provided above may also be exercised over non-stock savings and loan associations,
based on the same applicable grounds. For quasi-banks and non-stock savings and
loan associations, any person of recognized competence in banking, credit or finance
may be designated by the Bangko Sentral as a receiver."

SEC. 14. Section 31 of Republic Act No. 7653 is hereby deleted.

SEC. 15. Section 32 of Republic Act No. 7653 is hereby deleted.

SEC. 16. Section 34 of the same Act is hereby amended to read as follows:

"SEC. 34. Refusal to Make Reports or Permit Examination. - Any officer, owner,
agent, manager, director or officer-in-charge of any institution who, being required in
writing by the Monetary Board or by the head of the supervising and examining
department within the purview of this Act and relevant laws willfully refuses to file
the required report or permit any lawful examination into the affairs of such
institution shall be punished by a fine of not less than Fifty thousand pesos (P50.000)
nor more than Two million pesos (P2,000,000) or by imprisonment of not less than
one (1) year nor more than five (5) years, or both, at the discretion of the court.

"This shall also apply to the officer, owner, agent, manager, director or officer-in-
charge of the affiliate company/ies whose transactions are subject to examination
under this Act."

SEC. 17. Section 35 of the same Act is hereby amended to read as follows:

"Sec. 35. False Statement. - The willful making of a false or misleading statement on
a «:f(. material fact to the Monetary Board or to the examiners of the Bangko Sentral
shall be punished by a fine of not less than One hundred thousand pesos (P100,000)
nor more than Two million pesos (P2,000,000), or by imprisonment of not more than
five (5) years, or both, at the discretion of the court."

SEC. 18. Section 36 of the same Act is hereby amended to read as follows:

"SEC. 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. - Whenever a bank, quasi-bank, including their
subsidiaries and affiliates engaged in allied activities or other entity which under this
Act or special laws is subject to Bangko Sentral supervision or whenever any person
or entity willfully violates this Act or other pertinent banking laws being enforced or
implemented by the Bangko Sentral or any order, instruction, rule or regulation issued
by the Monetary Board, the person or persons responsible for such violation shall
unless otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50.000) nor more than Two million pesos (P2,000,000) or by
imprisonment of not less than two (2) years nor more than ten (10) years, or both, at
the discretion of the court.

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"Whenever an entity under Bangko Sentral supervision persists in carrying on its

business in an unlawful or unsafe manner, the Board may, without prejudice to the
penalties provided in the preceding paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take action under Section 30 of this Act.

"The Bangko Sentral may grant informer's reward to any person, except an officer or
employee of the Bangko Sentral or of any intelligence or law enforcement agency,
including the relatives of such officer or employee within the fourth degree of
consanguinity or affinity, who voluntarily give definite information not yet in the
possession of the Bangko Sentral leading to the; (a) arrest of bank directors or officers
and/or BSP personnel for violation of this Act or any banking and other laws
implemented or enforced by the Bangko Sentral, or for violation of other penal laws
committed in connection with their employment or functions; or (b) filing of criminal
charges against any person for violation of Section 50 of this Act.

"The Monetary Board is hereby authorized to promulgate the implementing

guidelines for the grant of informer's reward, which in no case shall exceed One
million pesos (Pl,000,000). Said guidelines may provide for additional qualifications
and disqualifications of informants as well as the form and minimum content of the
information given.

"The cash reward of informers shall be subject to applicable withholding taxes."

SEC. 19. Section 37 of the same Act is hereby amended to read as follows:

"SEC. 37. Administrative Sanctions on Supervised Entities. — The imposition of

administrative sanctions shall be fair, consistent and reasonable. Without prejudice to
the criminal sanctions against the culpable persons provided in Sections 34, 35, and
36 of this Act, the Monetary Board may, at its discretion, impose upon any bank,
quasi-bank, including their subsidiaries and affiliates engaged in allied activities, or
other entity which under this Act or special laws are subject to the Bangko Sentral
supervision, and/or their directors, officers or employees, for any willful violation of
its charter or bylaws, willful delay in the submission of reports or publications thereof
as required by law, rules and regulations; any refusal to permit examination into the
affairs of the institution; any willful making of a false or misleading statement to the
Board or the appropriate supervising and examining department or its examiners; any
willful failure or refusal to comply with, or violation of, any banking law or any order,
instruction or regulation issued by the Monetary Board, or any order, instruction or
ruling by the Governor; or any commission of irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary
Board, the following administrative sanctions, whenever applicable:

"(a) fines in amounts as may be determined by the Monetary Board to be appropriate,

but in no case to exceed One million pesos (P1,000,000) for each transactional
violation or One hundred thousand pesos (P100,000) per calendar day for violations
of a continuing nature, taking into consideration the attendant circumstances, such as
the nature and gravity of the violation or irregularity and the size of the institution:
Provided, That in case profit is gained or loss is avoided as a result of the violation, a

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fine no more than three (3) times the profit gained or loss avoided may also be
imposed;

"(b) suspension of rediscounting privileges or access to Bangko Sentral credit

facilities;

"(c) suspension of lending or foreign exchange operations or authority to accept new

deposits or make new investments;

"(d) suspension of interbank clearing privileges; and/or

"(e) suspension or revocation of quasi-banking or other special licenses.

"Resignation or termination from office shall not exempt such director, officer or
employee from administrative or criminal sanctions.

"The Monetary Board may, whenever warranted by circumstances, preventively

suspend any director, officer or employee of the institution pending an investigation:
Provided, That should the case be not finally decided by the Bangko Sentral within a
period of one hundred twenty (120) days after the date of suspension, said director,
officer or employee shall be reinstated in his position: Provided, further, That when
the delay in the disposition of the case is due to the fault, negligence or petition of the
director or officer, the period of delay shall not be counted in computing the period of
suspension herein provided.

"The above administrative sanctions need not be applied in the order of their severity.

"Whether or not there is an administrative proceeding, if the institution and/or the

directors, officers or employees concerned continue with or otherwise persist in the
commission of the indicated practice or violation, the Monetary Board may issue an
order requiring the institution and/or the directors, officers or employees concerned to
cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or
violation. The cease and desist order shall be immediately effective upon service on
the respondents.

"The respondents shall be afforded an opportunity to defend their action in a hearing

before the Monetary Board or any committee chaired by any Monetary Board member
created for the purpose, upon request made by the respondents within five (5) days
from their receipt of the order. If no such hearing is requested within said period, the
order shall be final. If a hearing is conducted, all issues shall be determined on the
basis of records, after which the Monetary Board may either reconsider or make final
its order.

The Governor is hereby authorized, at his discretion, to impose upon banks and quasi-
banks, including their subsidiaries and affiliates engaged in allied activities, and other
entities which under this Act or special laws are subject to Bangko Sentral supervision
for any failure to comply with the requirements of law, Monetary Board regulations
and policies, and/or instructions issued by the Monetary Board or by the Governor,
fines not in '^:9if excess of One hundred thousand pesos (P100,000) for each

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transactional violation or Thirty thousand pesos (P30.000) per calendar day for
violations of a continuing nature, the imposition of which shall be final and executory
until reversed, modified or lifted by the Monetary Board on appeal."

SEC. 20. A new section entitled Section 38-A is hereby included in the same Act to
read as follows:

"SEC. 38-A. Issuance of Injunctive Relief Against Bangko Sentral Actions. - No court,
other than the Court of Appeals and the Supreme Court, shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory injunction against
the Bangko Sentral for any action under this Act.

"Any restraining order or injunction issued in violation of this section is void and of
no force and effect.

"The provisions of the Rules of Court on injunctions insofar as these are applicable
and not inconsistent with the provisions of this Act shall govern the issuance and
dissolution of restraining orders or injunctions against the Bangko Sentral."

SEC. 21. Section 39 of the same Act is hereby amended as follows:

"Sec. 39. Reports and Publications. - The Bangko Sentral shall publish a general
balance sheet showing the volume and composition of its assets and liabilities as of
the last working day of the month within ninety (90) days after the end of each month,
which may be reasonably extended by the Bangko Sentral as warranted.

"The Monetary Board shall publish and submit the following reports to the President
and to the Congress:

"(a) not later than ninety (90) days after the end of each quarter, an analysis of
economic and financial developments, including the condition of net international
reserves and monetary aggregates;

"(b) within ninety (90) days after the end of the year, which may be reasonably
extended by the Bangko Sentral as warranted, the preceding year's budget and profit
and loss statement of the Bangko Sentral showing in reasonable detail the result of its
operations;

"(c) one hundred twenty (120) days after the end of each semester, a review of the
state of the financial system; and

"(d) as soon as practicable, abnormal movements in monetary aggregates and the

general price level, and, not later than seventy-two (72) hours after they are taken,
remedial measures in response to such abnormal movements."

SEC. 22. Section 40 of the same Act is hereby amended as follows:

"SEC. 40. Annual Report. — Before the end of June of each year, the Bangko Sentral
shall publish and submit to the President and the Congress an annual report on the
condition of the Bangko Sentral including a review of the policies and measures

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adopted by the Monetary Board during the past year and an analysis of the economic
and financial circumstances which gave rise to said policies and measures.

"The annual report shall also include a statement of the financial condition of the
Bangko Sentral and a statistical appendix which shall present, as a minimum, the
following data:

"(a) the monthly movement of monetary aggregates and their components;

"(b) the monthly movement of purchases and sales of foreign exchange and of the
international reserves of the Bangko Sentral;

"(c) the balance of payments of the Philippines;

"(d) monthly indices of consumer prices and of import and export prices;

"(e) the monthly movement, in summary form, of exports and imports, by volume and
value:

"(f) the monthly movement of the accounts of the Bangko Sentral and of other banks;

"(g) the principal data on government receipts and expenditures and on the status of
the public debt, both domestic and foreign; and

"(h) the .texts of the major legal and administrative measures adopted by the
Government and the Monetary Board during the year which relate to the functions or
operations of the Bangko Sentral or of the financial system.

"The Bangko Sentral shall publish another version of the annual report in terms
understandable to the layman."

SEC. 23. Section 43 of the same Act is hereby amended as follows:

"SEC. 43. Computation of Profits and Losses. - Within the first sixty (60) days
following the end of each year, the Bangko Sentral shall determine its net profits or
losses. Notwithstanding any provision of law to the contrary, the net profit of the
Bangko Sentral shall be determined after allowing , for expenses of operation,
adequate allowances and provisions for bad and doubtful debts, depreciation in assets,
and such allowances and provisions for contingencies or other purposes as the
Monetary Board may determine in accordance with prudent financial management
and effective central banking operations."

SEC. 24. A new section entitled Section 43-A is hereby included in the same Act to
read as follows:

"SEC. 43-A. Bangko Sentral Reserve Fund. — The Bangko Sentral shall establish a
reserve fund, whenever it has income or positive surplus, to mitigate future risks such
as, but not limited to, the impacts of foreign exchange and price fluctuations, and to
address other contingencies inherent in carrying out the Bangko Sentral-mandated
functions as central monetary authority. The reserve fund shall consist of fluctuation

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reserve, contingency reserve and such other reserves as the Monetary Board deems
prudent or necessary."
SEC. 25. Section 45 of the same Act is hereby amended to read as follows:
"Sec. 45. Revaluation Profits and Losses. — Unrealized profits or losses arising from
any revaluation of the Bangko Sentral's assets, liabilities or derivative instruments
denominated in foreign currencies with respect to the movements of prices and
exchange rates from third currencies to Philippine peso shall not be included in the
computation of the annual profits and losses of the Bangko Sentral. Any profits or
losses arising in this manner shall be offset by any amounts which, as a consequence
of such revaluations, are owed by the Philippines to any international or regional
intergovernmental financial institution of which the Philippines is a member or are
owed by these institutions to the Philippines. Any remaining unrealized profit or loss
shall be carried in an account which shall be named 'Revaluation of International
Reserve (RIR)', and the net balance of which shall appear either among the liabilities
or among the assets of the Bangko Sentral, depending on whether the revaluations
have produced net profits or net losses.

"The RIR account shall be credited or debited for the periodic revaluation as
authorized in this section and to reflect the corresponding adjustment resulting to
reduction in the Bangko Sentral's net foreign assets, liabilities and foreign _ currency-
denominated derivative instruments. The RIR shall be adjusted and recognized in the
income . statement upon sale of gold and foreign securities, or when the foreign
currency is repatriated to local currency or is used to pay foreign obligations, or upon
maturity of a foreign currency-denominated forward or option contract involving the
Philippine peso."

SEC. 26. Section 61 of the same Act is hereby amended to read as follows:

"SEC. 61. Guiding Principle. - The Monetary Board shall regularly assess price
developments and outlook and, based on its analysis and evaluation of inflationary
pressures, use its policy instruments to attain and maintain price stability."

SEC. 27. Section 63 of the same Act is hereby amended to read as follows;

"SEC. 63. Action When Abnormal Movements Occur in the Price Level. - Whenever
abnormal movements in the prices endanger the stability of the Philippine economy or
important sectors thereof, the Monetary Board shall:

"(a) take such remedial measures as are appropriate and within the powers granted to
the Monetary Board and the Bangko Sentral under the provisions of this Act; and

"(b) submit to the President of the Philippines and the Congress, and make public, a
detailed report which shall include, as a minimum, a description and analysis of:

"(1) the causes of the rise or fall of prices;

"(2) the extent to which the changes in prices have been reflected in changes in the
level of domestic output, employment, wages and economic activity in general, and
the nature and significance of any such changes; and

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"(3) the measures which the Monetary Board has taken and the other monetary, fiscal
or administrative measures which it recommends to be adopted.

"Whenever the cost of living index increases by more than ten percent (10%), in
relation to the level existing at the end of the corresponding month of the preceding
year, or even though this quantitative guideline has not been reached when in its
judgment the circumstances so warrant, the Monetary Board shall submit the reports
mentioned in this section, and shall state therein whether, in the opinion of the Board,
said changes in the cost of living represent a threat to the stability of the Philippine
economy or of important sectors thereof.

"The Monetary Board shall continue to submit periodic reports to the President of the
Philippines and to Congress until it considers that the price disturbances have
disappeared or have been adequately controlled."

SEC. 28. Section 66 of the same Act is hereby amended to read as follows:

"SEC. 66. Composition of the International Reserves. - The international reserves of

the Bangko Sentral may include, but shall not be limited to, the following assets:

"(a) gold; and

"(b) assets in foreign currencies in the form of: documents and instruments
customarily employed for the international transfer of funds; demand and time
deposits in central banks, treasuries and commercial banks abroad; foreign,
government securities; and foreign notes and coins.

"The Monetary Board shall endeavor to hold the foreign exchange resources of the
Bangko Sentral in freely convertible currencies. The Monetary Board shall issue
regulations determining the other qualifications which foreign exchange assets must
meet in order to be included in the international reserves of the Bangko Sentral.

"The Bangko Sentral shall be free to convert any of the assets in its international
reserves into other assets as described in subsections (a) and (b) of this section."

SEC. 29. Section 81 of the same Act is hereby amended to read as follows:

"SEC. 81. Guiding Principles. - The rediscounts, discounts, loans and advances which
the Bangko Sentral is authorized to extend to banking institutions, under the
provisions of the present article of this Act shall be used to influence the volume of
credit consistent with the objective of price stability and maintenance of financial
stability."

SEC. 30. Section 84 of the same Act is hereby amended to read as follows:

"SEC. 84. Emergency Loans and Advances. — In periods of national and/or local
emergency or of imminent financial panic which directly threaten monetary and
financial stability, the Monetary Board may, by a vote of at least five (5) of its
members, authorize the Bangko Sentral to grant extraordinary loans or advances to
banking institutions, secured by assets as defined hereunder: Provided, That while

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such loans or advances are outstanding, the debtor institution shall not, except upon
prior authorization by the Monetary Board, expand the total volume of its loans or
investments.

"The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to
grant emergency loans or advances to banking institutions, even during normal
periods, for the purpose of assisting a bank in a precarious financial condition or
under serious financial pressures brought by unforeseen events, or events which,
though foreseeable, could not be prevented by the bank concerned: Provided, however.
That the Monetary Board has ascertained that the bank is not insolvent and has the
assets defined hereunder to secure the advances: Provided, further, That a concurrent
vote of at least five (5) members of the Monetary Board is obtained.

"The amount of any emergency loan or advance shall not exceed the sum of fifty
percent (50%) of total deposits and deposit substitutes of the banking institution, and
shall be disbursed in two (2) or more tranches. The amount of the first tranche shall be
limited to twenty-five percent (25%) of the total deposit and deposit substitutes of the
institution and shall be secured by (a) government securities; (b) acceptable
guarantees backed up by the national government or its securities; (c) other
unencumbered first class collaterals; and (d) other kinds of collaterals as may be
authorized by the Monetary Board in accordance with sound risk management
principles: Provided, That if as determined by the Monetary Board, the circumstances
surrounding the emergency warrant a loan or advance greater than the amount
provided hereinabove, the amount of the first tranche may exceed twenty-five percent
(25%) of the bank's total deposit and deposit substitutes if the same is adequately
secured by any of the collaterals set forth above as approved by the Monetary Board,
and the principal stockholders of the institution furnish an acceptable undertaking to
indemnify and hold harmless from suit a conservator whose appointment the
Monetary Board may find necessary at any time.

"Prior to the release of the first tranche, the banking institution shall submit to the
Bangko Sentral a resolution of its board of directors authorizing the Bangko Sentral to
evaluate other assets of the banking institution certified by its external auditor to be
good and available for collateral purposes should the release of the subsequent tranche
be thereafter applied for.

'The Monetary Board may, by a vote of at least five (5) of its members, authorize the
release of a subsequent tranche on condition that the principal stockholders of the
institution:

"(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a
conservator whose appointment the Monetary Board may find necessary at any time;
and

"(b) provide acceptable security which, in the judgment of the Monetary Board,
would be adequate to supplement, where necessary, the assets tendered by the
banking institution to collateralize the subsequent tranche.

"In connection with the exercise of these powers, the prohibitions in Section 128 of
this Act shall not apply insofar as it refers to acceptance as collateral of shares and

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their acquisition as a result of foreclosure proceedings, including the exercise of

voting rights pertaining to said shares: Provided, however, That should the Bangko
Sentral acquire any of the shares it has accepted as collateral as a result of foreclosure
proceedings, the Bangko Sentral shall dispose of said shares by public bidding within
one (1) year from the date of consolidation of title by the Bangko Sentral.

"Whenever a financial institution incurs an overdraft in its account with the Bangko
Sentral, the same shall be eliminated within the period prescribed in Section 102 of
this Act."

SEC. 31. A new section entitled Section 88-A is hereby included in the same Act to
read as follows:

"SEC. 88-A. Exemption of Collaterals from Attachments, Executions and Other

Restrictions. - Collaterals on loans and advances granted by the Bangko Sentral,
whether or not the interest of the Bangko Sentral is registered, shall not be subject to
attachment, execution or any other court process or administrative restrictions on land
use, nor shall they be included in the property of insolvent persons or institutions."

SEC. 32. A new section entitled Section 88-B is hereby included in the same Act to
read as follows:

"SEC. 88-B. Deputization of Legal Staff in Case of Foreclosures. - In case of an

extrajudicial foreclosure of mortgage in connection with loans and advances under
this article, the Bangko Sentral may deputize any of its lawyers to conduct the public
auction pursuant to Aet No. 3135, as amended.

"Likewise, in case of a judicial foreclosure in connection with loans and advances

under this article, the Bangko Sentral may, with the approval of the court, deputize
any of its lawyers to act as special sheriff in the sale of a debtor's properties and in the
enforcement of court writs and processes related thereto. The special sheriff of the
Bangko Sentral shall make a report to the proper court after any action has been taken
by Him, which court shall treat such action as if it were an act of its own sheriff in all
respects.

"No restraining order or injunction shall be issued by the court enjoining the Bangko
Sentral from proceeding with the foreclosure of the mortgage unless a bond is posted
in favor of the Bangko Sentral in an amount equivalent to the total claim of the
Bangko Sentral. The restraining order or injunction shall be refused or, if granted,
shall be dissolved upon filing by the Bangko Sentral of a bond, which shall be in the
form of a Bangko Sentral check, in an amount twice the amount of the original bond
posted conditioned that the Bangko Sentral will pay the damages which the party may
suffer by the refusal or dissolution of the injunction. The provisions of the Rules of
Court on injunctions insofar as they are applicable and not inconsistent with the
provisions of this section shall govern the issuance and dissolution of the restraining
order or injunction contemplated in this section."

SEC 33. A new section entitled Section 88-C is hereby included in the same Act to
read as follows:

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"SEC. 88-C. Right of Redemption of Foreclosed Real Property; Right of Possession

During Redemption Period. — In the event of foreclosure, whether judicially or
extrajudidally, the mortgagor, who is a natural person, shall have the right to redeem
the property within one (1) year from the date of foreclosure sale. In case the
mortgagor is a juridical person, the mortgagor shall have the right to redeem the
property sold in a judicial foreclosure sale within one (1) year from the date of
foreclosure sale: Provided, That in case of an extrajudicial foreclosure,
notwithstanding Act No. 3135, the mortgagor shall have the right to redeem the
property sold within ninety (90) days from the foreclosure sale but not later than the
registration of the certificate of foreclosure .sale. Redemption shall be effected by
paying the principal, interests, charges, commissions and all claims of whatever
nature of the Bangko Sentral outstanding and due as of the date of foreclosure sale,
including all costs and other expenses incurred by reason of the foreclosure sale and
custody of the property.

"The Bangko Sentral, as purchaser in the foreclosure sale and without need of posting
a bond, may take possession of the foreclosed property during the redemption period.
The Bangko Sentral shall be entitled to the fruits of the property, the same to be
applied against the redemption price."

SEC. 34. A new section entitled Section 88-D is hereby included in the same Act to
read as follows:

"SEC. 88-D. Unsecured Bangko Sentral Claims. - All unsecured claims of the Bangko
Sentral shall be considered preferred credits similar to taxes due to the National
Government in the order of preference under Article 2244 of the new Civil Code."

SEC. 35. A new section entitled Section 89-A is hereby included in the same Act to
read as follows:

"SEC. 89-A. Financial Facilities for Islamic Banks. - The Bangko Sentral may, taking
into consideration the peculiar characteristics of islamic banking, formulate rules and
regulations for the extension of financial facilities to islamic banks: Provided, That
such exposures shall be properly secured."

SEC. 36. A new section entitled Section 89-B is hereby included in the same Act to
read as follows:

"SEC. 89-B. Loans to the Philippine Deposit Insurance Corporation (PDIC). — The
Bangko Sentral, pursuant to its mandate of maintaining financial stability, may lend
funds to the PDIC for insurance purposes and in cases of financial assistance that the
latter is authorized to extend under Section 22(e) of Republic Act No. 3591, as
amended. Notwithstanding Section 23 of Republic Act No. 3591, as amended, the
Monetary Board shall prescribe interest rates and such other terms and conditions of
the loan."

SEC. 37. Section 92 of the same Act is hereby amended to read as follows:

"SEC. 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to provide
the Bangko Sentral with effective instruments for open market operations, the Bangko

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Sentral may, subject to such rules and regulations as the Monetary Board may
prescribe and in accordance with the principles stated in Section 90 of this Act, issue,
place, buy and sell freely negotiable evidences of indebtedness of the Bangko Sentral.
Said evidences of indebtedness may be issued directly against the international
reserve of the Bangko Sentral or against the securities which it has acquired under the
provisions of Section 91 of this Act, or may be issued without relation to specific
types of assets of the Bangko Sentral.

"The Monetary Board shall determine the interest rates, maturities and other
characteristics of said obligations of the Bangko Sentral, and may, if it deems it
advisable, denominate the obligations in gold or foreign currencies.

"Subject to the principles stated in Section 90 of this Act, the evidences of

indebtedness of the Bangko Sentral to which this section refers may be acquired by
the Bangko Sentral before their maturity, either through purchases in the open market
or through redemptions at par and by lot if the Bangko Sentral has reserved the right
to make such redemptions. The evidences of indebtedness acquired or redeemed by
the Bangko Sentral shall not be included among its assets, and shall be immediately
retired and cancelled."

SEC. 38. Section 95 of the same Act is hereby amended to read as follows:

"SEC. 95. Definition of Deposit Substitutes. — The term 'deposit substitutes is

defined as an alternative form of obtaining funds from the public, other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the
borrower's own account, for the purpose of relending or purchasing of receivables and
other obligations. These instruments may include, but need not be limited to, bankers
acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The phrase 'obtaining funds
from the public' shall mean borrowing from twenty (20) or more lenders at any one
time, and, for this purpose, lenders' shall refer to individuals and corporate entities
that are not acting as financial intermediaries, subject to the safeguards and
regulations issued by the Monetary Board. The Monetary Board shall determine what
specific instruments shall be considered as deposit substitutes for the purposes of
Section 94 of this Act: Provided, however, That deposit substitutes of commercial,
industrial and other nonfinancial companies for the limited purpose of financing their
own needs or the needs of their agents or dealers shall not be covered by the
provisions of Section 94 of this Act."

SEC. 39. Section 101 of the same Act is hereby amended to read as follows:

"SEC. 101. Reserve Deficiencies. - Whenever the reserve position of any bank or
quasi-bank, computed in the manner specified in the preceding section of this Act, is
below the required minimum, the bank or quasi-bank shall pay the Bangko Sentral
monetary penalty as may be prescribed by the Monetary Board: Provided, however,
That banks and quasi-banks shall ordinarily be permitted to offset any reserve
deficiency occurring on one or more days of the week with any excess reserves which
they may hold on other days of the same week and shall be required to pay the penalty
in accordance with the mechanism approved by the Monetary Board. In cases of

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abuse, the Monetary Board may deny any bank or quasi-bank the privilege of
offsetting reserve deficiencies in the aforesaid manner.

"If a bank or quasi-bank chronically has a reserve deficiency, the Monetary Board
may limit or prohibit the making of new loans or investments by the institution and
may require that part or all of the net profits of the institution be assigned to surplus.

"The Monetary Board may modify or set aside the reserve deficiency penalties
provided in this section, for part or the entire period of a strike or lockout affecting a
bank or a quasi-bank as defined in the Labor Code, or of a national emergency
affecting operations of banks or quasi-banks, or in such other instances where the
grant of waiver of penalties is determined by the Monetary Board to be justifiable.
The Monetary Board may also modify or set aside reserve deficiency penalties for
rehabilitation program of a bank."

SEC. 40. Section 104 of the same Act is hereby amended to read as follows:

"SEC. 104. Guiding Principle. - The Monetary Board shall use the powers granted to
it under this Act to ensure that the supply, availability -? % and cost of money are in
accord with the needs of the Philippine economy and that bank credit is not granted
for speculative purposes prejudicial to the national interests. Regulations on bank
operations shall be applied to all banks of the same category, as may be defined by the
Monetary Board, uniformly and without discrimination."

SEC. 41. Section 108 of the same Act is hereby amended to read as follows:

"SEC. 108. Minimum Capital Ratios. - The Monetary Board may prescribe minimum
risk-based capital adequacy ratios based on internationally accepted standards and
may alter said ratios whenever it deems necessary. In the exercise of its authority
under this section, the Monetary Board may require banks to hold capital beyond the
minimum requirements commensurate to their risk profile."

SEC.. 42. Section 113 of the same Act is hereby amended to read as follows:

"SEC. 113. Official Deposits. - The Bangko Sentral shall be the official depository of
the Government, its political subdivisions and instrumentalities as well as of
government-owned or -controlled corporations. As a general policy, their cash
balances should be depositedwith the Bangko Sentral, with only minimum working
balances to be held by government-owned banks and such other banks licensed to
operate in the Philippines as the Monetary Board may authorize.

"The Bangko Sentral may accept deposits and pay interest on such deposits and other
similar placements of the Government or of its political subdivisions and
instrumentalities, banks and other Bangko Sentral-supervised institutions."

Sec. 43. Section 123 of the same Act is hereby amended to read as follows:

"SEC. 123. Financial Advice on Official Credit Operations. - Before undertaking any
credit operation abroad, the Government, through the Secretary of Finance, shall
request the opinion, in writing, of the Monetary Board on the monetary implications

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of the contemplated action. Such opinions must similarly be requested by all political
subdivisions and instrumentalities of the Government before any credit operation
abroad is undertaken by them.

"The opinion of the Monetary Board shall be based on the gold and foreign exchange
resources and obligations of the nation and on the effects of the proposed operation on
the balance of payments and on monetary aggregates.

"Whenever the Government, or any of its political subdivisions or instrumentalities,

contemplates borrowing within the Philippines, the prior opinion of the Monetary
Board shall likewise be requested in order that the Board may render an opinion on
the probable effects of the proposed operation on monetary aggregates, the price level,
and the balance of payments.

"A credit operation or borrowing as provided herein may take the form of different
credit facilities such as, but not limited to, a single loan, series of loans under a
borrowing program, or credit lines. No prior Monetary Board opinion shall be
required for individual drawdowns or borrowings within approved credit lines or
borrowing programs."

SEC. 44. Section 125 of the same Act is hereby amended to read as follows:

"SEC. 125. Tax Exemptions. - The Bangko Sentral shall be exempt from all national,
provincial,
municipal and city taxes on income derived from its governmental functions,
specifically:

"(a) income from its activities or transactions in the exercise of its supervision over
the operations Of hanks and its regulatory and examination powers ,. 9r over non-
bank financial institutions performing quasi-banking functions, money service
businesses, credit granting businesses and payment system operators; and

"(b) income in pursuit of its primary objective to maintain price stability conducive to
a balanced and sustainable growth of the economy, and the promotion and
maintenance of monetary and financial stability and the convertibility of the peso.

"All other incomes not included in the above enumeration shall he considered as
proprietary income and shall be subject to all taxes, charges, fees and assessments."

SEC. 45. Section 128 of the same Act is hereby amended to read as follows:

"SEC. 128. Prohibitions. - The Bangko Sentrcd shall not acquire shares of any kind or
accept them as collateral, and shall not participate in the ownership or management of
any enterprise, either directly or indirectly: Provided, That this prohibition shall not
apply whenever the Monetary Board, by a vote of at least five (5) of its members, (1)
deems an acquisition or investment to be necessary to qualify or as required for
membership in international and regional organizations; or (2) determines that
investing in and/or operating an enterprise will be consistent with the effective
fulfillment of its mandate and will not constitute any conflict of • interest.

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"The Bangko Sentral shall not engage in development banking or financing: Provided,
however, That outstanding loans obtained or extended for development financing
shall not be affected by the prohibition of this section."

SEC. 46. Section. 132 of the same Act is hereby amended to read as follows:

"SEC. 132. Transfer of Assets and Liabilities.

- x x x.

"x x x.

"(b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits as
computed in this Act to a special deposit account (sinking fund) or to the National
Treasury as dividends, until such time as the net liabilities of the Central Bank shall
have been liquidated through generally accepted finance mechanisms such as, but not
limited to, write-offs, set-offs, condonation, collections, reappraisal, revaluation and
bond issuance by the National Government. Thereafter, it shall remit fifty percent
(50%) of its said net profits to the National Treasury;

"x x x."

SEC. 47. Repealing Clause. - All provisions of existing laws, orders, rules and
regulations, or parts thereof which are in conflict or inconsistent with the provisipns
of this Act are hereby repealed, amended or modified accordingly.

SEC. 48. Separability Clause. - If any provision or section of this Act is held to be
unconstitutional or invalid, the other provisions or sections hereof, which are not
affected thereby shall continue to be in full force and effect.

SEC. 49. Effectivity. - This Act shall take effect fifteen (15) days following its
publication in the Official Gazette or in a newspaper of general circulation in the
Philippines.

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IV. OPERATIONS OF BANGKO SENTRAL

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines. It was
established on January 3, 1949, and re-established on July 3, 1993, pursuant to the
provision of Republic Act 7653 or the New Central Bank Act of 1993, as amended by
Republic Act 11211 or the New Central Bank Act of 2019.

Here are some key aspects of BSP's operations:

Monetary Policy
The Bangko Sentral ng Pilipinas (BSP) employs an inflation targeting framework to
ensure stable prices, which is vital for sustainable economic growth. The framework
involves setting a target range for inflation, which is publicly announced to guide the
expectations of households, businesses, and investors. The Monetary Board, BSP's
highest policy-making body, meets regularly to assess economic conditions and
determine the appropriate stance of monetary policy.

To achieve the inflation target, the BSP uses various policy instruments, including the
policy interest rate, open market operations, and reserve requirements. The policy
interest rate, also known as the overnight reverse repurchase (RRP) facility rate, is the
rate at which the central bank lends to or borrows from banks. By adjusting this rate,
the BSP influences the cost of borrowing and lending in the economy, thereby
affecting aggregate demand and inflation. Open market operations involve the buying
and selling of government securities to manage liquidity in the financial system. The
BSP also sets reserve requirements, which are the minimum amounts of reserves that
banks must hold against their deposit liabilities. By changing reserve requirements,
the BSP can influence the amount of funds available for lending and spending.

In addition to these traditional tools, the BSP has adopted macroprudential measures
to address systemic risks and enhance financial stability. These measures include
countercyclical capital buffers, loan-to-value ratios, and debt-to-income ratios. By
implementing these measures, the BSP aims to prevent the build-up of financial
imbalances and mitigate the impact of financial shocks on the economy.

Monetary Operations
The BSP's monetary operations involve a range of activities aimed at implementing
monetary policy and managing liquidity in the financial system. One of the primary
tools used by the BSP is the overnight reverse repurchase (RRP) facility, which
allows banks to lend funds to the central bank overnight in exchange for government
securities. This facility provides a short-term investment option for banks and helps
the BSP manage liquidity in the financial system.

In addition to the RRP facility, the BSP also conducts term deposit auctions, where
banks can place their excess funds in fixed-term deposits with the central bank. These

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auctions help the BSP control the supply of money in the economy and influence
short-term interest rates.

The BSP also engages in open market operations, which involve the buying and
selling of government securities to manage liquidity in the financial system. By
purchasing government securities, the BSP injects liquidity into the financial system,
while selling securities withdraws liquidity. These operations help the BSP achieve its
monetary policy objectives and maintain stability in the financial system.

To manage foreign exchange volatility and support the implementation of monetary

policy, the BSP participates in the foreign exchange market through spot and forward
transactions. These transactions help the BSP maintain stability in the exchange rate
and manage liquidity in the financial system.

Systemic Risk Management

The BSP plays a crucial role in promoting financial stability by identifying,
monitoring, and mitigating systemic risks. The Financial Stability Coordination
Council (FSCC), chaired by the BSP Governor, coordinates efforts to address
potential threats to financial stability. The FSCC includes representatives from the
Department of Finance (DOF), the Insurance Commission (IC), the Philippine
Deposit Insurance Corporation (PDIC), and the Securities and Exchange Commission
(SEC).

The BSP conducts regular stress tests and risk assessments to evaluate the resilience
of the banking system to various shocks. These stress tests help the BSP identify
vulnerabilities and take preemptive actions to strengthen the financial system. The
BSP also monitors the interconnectedness of financial institutions and the potential
for contagion effects in the event of a financial shock.

To enhance financial stability, the BSP has implemented various macroprudential

measures, including countercyclical capital buffers, loan-to-value ratios, and debt-to-
income ratios. These measures aim to limit excessive risk-taking by financial
institutions and reduce the impact of financial shocks on the economy.

The BSP also collaborates with international organizations and regulatory bodies to
share information and best practices in financial stability. This collaboration helps the
BSP stay informed about global developments and strengthen its capacity to address
systemic risks.

Financial Supervision
The BSP supervises and regulates the operations of banks and non-bank financial
institutions (NBFIs) to ensure their safety and soundness. The supervision framework
includes the licensing of new banks, periodic examination of existing institutions, and
enforcement of prudential regulations.

The BSP conducts on-site examinations and off-site surveillance to assess the
financial condition and risk management practices of banks and NBFIs. These
examinations include a review of capital adequacy, asset quality, management quality,
earnings, liquidity, and sensitivity to market risk (CAMELS). The BSP also evaluates

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the effectiveness of internal controls, corporate governance, and compliance with

regulatory requirements.

To enhance the resilience of the financial system, the BSP has adopted the Basel III
framework, which includes stricter capital and liquidity requirements for banks. The
BSP also enforces anti-money laundering (AML) and combating the financing of
terrorism (CFT) regulations to prevent financial crimes and protect the integrity of the
financial system.

The BSP works closely with other regulatory agencies, such as the SEC, IC, and
PDIC, to ensure a coordinated approach to financial supervision. This collaboration
helps the BSP address emerging risks and maintain the stability of the financial
system.

Payments and Settlements System Oversight

The BSP oversees the country's payment and settlement systems to ensure their safety,
efficiency, and reliability. These systems are essential for the smooth functioning of
financial markets and the effective implementation of monetary policy.

The BSP operates the Philippine Payment and Settlement System (PhilPaSS), a real-
time gross settlement (RTGS) system that processes large-value interbank
transactions. PhilPaSS provides a safe and efficient platform for the settlement of
payment obligations between banks and other financial institutions.

In addition to PhilPaSS, the BSP oversees other payment systems, such as the
automated clearing houses (ACHs) for electronic fund transfers and the retail payment
systems for small-value transactions. The BSP sets regulatory standards and
guidelines to ensure the security, efficiency, and reliability of these payment systems.

To promote the adoption of digital payments, the BSP has launched various initiatives,
such as the National Retail Payment System (NRPS) and the Digital Payments
Transformation Roadmap. These initiatives aim to increase the use of electronic
payments, enhance financial inclusion, and improve the efficiency of the payment
system.

The BSP also collaborates with international organizations and regulatory bodies to
develop global standards and best practices for payment systems oversight. This
collaboration helps the BSP stay informed about global developments and enhance
the resilience of the Philippine payment system.

Currency Management
The BSP has the exclusive authority to issue Philippine currency, which includes
notes and coins. The BSP ensures an adequate supply of high-quality currency to meet
the needs of the economy. This involves the design, production, distribution, and
disposal of currency.

The Currency Management Sub-Sector (CMSS) of the BSP is responsible for

currency planning, production, and distribution. The CMSS forecasts currency
demand, coordinates with the Security Plant Complex (SPC) for the production of
notes and coins, and distributes currency to the BSP's regional offices and branches.

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The SPC is equipped with advanced technology and security features to produce high-
quality and secure currency. The BSP continuously enhances the security features of
Philippine currency to prevent counterfeiting and maintain public confidence in the
currency.

The BSP also implements measures to ensure the efficient distribution and circulation
of currency. This includes the establishment of regional offices and branches, as well
as the coordination with banks and other financial institutions for the distribution and
withdrawal of currency.

To maintain the quality of currency in circulation, the BSP conducts regular currency
sorting and authentication activities. The BSP also recalls and replaces unfit or
damaged currency to ensure that only high-quality currency remains in circulation.

The BSP collaborates with law enforcement agencies to prevent counterfeiting and
protect the integrity of Philippine currency. The BSP also conducts public awareness
campaigns to educate the public about the security features of Philippine currency and
the importance of maintaining the quality of currency in circulation.

I hope you find this detailed overview of the BSP's operations helpful! If you have
any specific questions or need more information, feel free to ask

Bangko Sentral ng Pilipinas

MANDATE
Objectives
The BSP’s main primary objective is maintain price stability conducive to balanced
and sustainable economic growth. The BSP also aims to promote and preserve
monetary stability and the convertibility of the national currency.

Responsibilities
The BSP provides policy directions in the areas of money, banking and credit. It
supervises operations of banks and exercises regulatory powers over non-bank
financial institutions with quasi-banking functions.

Functions of the BSP

Under the New Central Bank Act of 1993, the BSP performs the following functions,
all of which relate to its status as the Republic’s central monetary authority.

Liquidity Management.
The BSP formulates and implements monetary policy aimed at influencing money
supply consistent with its primary objective to maintain price stability.

Currency issue.
The BSP has the exclusive power to issue the national currency. All notes and coins
issued by the BSP are fully guaranteed by the Government and are considered legal
tender for all private and public debts.

Lender of last resort.

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The BSP extends discounts, loans and advances to banking institutions for liquidity
purposes.

Financial Supervision.
The BSP supervises banks and exercises regulatory powers over non-bank institutions
performing quasi-banking functions.

Management of foreign currency reserves.

The BSP seeks to maintain sufficient international reserves to meet any foreseeable
net demands for foreign currencies in order to preserve the international stability and
convertibility of the Philippine peso.

Determination of exchange rate policy.

The BSP determines the exchange rate policy of the Philippines. Currently, the BSP
adheres to a market-oriented foreign exchange rate policy such that the role of
Bangko Sentral is principally to ensure orderly conditions in the market.

Other activities.
The BSP functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and GOCCs.

BSP Directory
BSP Regulations
BSP Official Website
Circular No. 706 (2011)
Circular No. 650 (2009)
Circular No. 516 (2006)
Regulations - Banking Laws
​ ​ ​ ​ FB ShareTwitter Share
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Republic Act No. 7353 (An Act Providing for
the Creation, Organization and Operation of Rural Banks, and for Other Purposes)

Republic of the Philippines

Congress of the Philippines
Metro, Manila

Fifth Regular Session

Begun and held in Metro, Manila, on Monday, the twenty- second day of July,
nineteen hundred and ninety-one.

REPUBLIC ACT NO. 7353

​ AN ACT PROVIDING FOR THE CREATION, ORGANIZATION AND

OPERATION OF RURAL BANKS, AND FOR OTHER PURPOSES

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Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled:

Section 1. This Act shall be known and cited as the "Rural Act of 1992."

Sec. 2. The State hereby recognizes the need to promote comprehensive rural
development with the end in view of attaining acquitable distribution of opportunities,
income and wealth; a sustained increase in the amount of goods and services
produced by the nation of the benefit of the people; and in expanding productivity as a
key raising the quality of life for all, especially the underprivileged.

Towards these ends, the State hereby encourages and assists in the establishment of
rural banking system designed to make needed credit available and readily accessible
in the rural areas on reasonable terms.​

Sec. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the
Philippines shall formulate the necessary rules and regulations governing the
establishment and operation of rural banks for the purpose of providing adequate
credit facilities to farmers and merchants, or to cooperatives of such farmers and
merchants and in general, the people of the rural communities, and to supervise the
operation of such banks.

Sec. 4. No rural bank shall be operated without a Certificate of Authority from the
Monetary Board of the Central Bank. Rural banks shall be organized in the form of
stock corporations. Upon consultation with the rural banks in the area, duly
established cooperatives and corporations primarily organize to hold equities in rural
banks may organize a rural bank and/or subscribe to the shares of stock of any rural
bank: Provided, That a cooperative or corporation owning or controlling the whole or
majority of the voting stock of the rural bank shall be subject to special examination
and to such rules and regulations as the Monetary Board may prescribe. With
exception of shareholdings of corporations organized primarily to hold equities in
rural banks as provided for under Section 12-C of Republic Act 337, as amended, and
of Filipino-controlled domestic banks, the capital stock of any rural bank shall be
fully owned and held directly or indirectly by citizens of the Philippines or
corporations, associations or cooperatives qualified under Philippine laws to own and
hold such capital stock: Provided, That any provisions of existing laws to own and
hold such capital stock: Provided, That any provision of existing laws to the contrary
notwithstanding, stockholdings in a rural bank shall be exempt from any ownership
ceiling for a period of ten (10) years from the approval of this Act: Provided, further,
That any such exemption shall require the approval of the Monetary Board. If
subscription of private shareholders to the capital stock of rural cannot be secured or
is not available, or insufficient to meet the normal credit needs of the locality, the
Land Bank of the Philippines, the Development Bank of the Philippines, or any
government-owned or controlled bank or financial institution, on representation of the
said private shareholders but subject to the investment guidelines, policies and
procedures of the bank or financial institution and upon approval of the Monetary
Board of the Central Bank, shall subscribe to the capital stock of such rural bank,
which shall be paid in full at the time of subscription, in an amount equal to the fully
paid subscribe and unimpaired capital of the private stockholders or such amount as

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the Monetary Board may prescribed as may be necessary to promote and expand rural
economic development: Provided, however, That such shares of stock subscribe by
the Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution may be sold at any time
at market value to private individuals who are citizens of the Philippines: Provided,
finally, That in the sale of shares of stock subscribed by the Land Bank of the
Philippines, the Development bank of the Philippines or any government-owned or
controlled bank or financial institution, the registered stockholders shall have the right
of preemption within one (1) year from the date of offer in proportion to their
respective holdings, but in the absence of such buyer, preference, however, shall be
given to residents of the locality or province where the rural bank is located.

Sec. 5. All members of the Board of Directors of the rural bank shall be citizens of the
Philippines at the time of their assumption to office: Provided, however, That nothing
in this Act shall be construed as prohibiting any appointive or elective public official
from serving as director, officer, consultant or in any capacity in the bank.

No Director or officer of any rural bank shall, either directly or indirectly, for himself
or as the representative or agent of another borrow any of the deposits or funds of
such banks, nor shall he become a guarantor, indorser, or surety for loans from such
bank to others, or in any manner be an obligor for money borrowed from the bank or
loaned by it except with the written approval of the majority of the directors of the
bank, excluding the director concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be transmitted forthwith to
the appropriate supervising department. The director/officer of the bank who violates
the provisions of this section shall be immediately dismissed from his office and shall
be penalized in accordance with Section 26 of this Act.

The Monetary Board may regulate the amount of credit accommodations that may be
extended directly to the directors, officers or stockholders of rural banks of banking
institutions. However, the outstanding credit accommodations which a rural bank may
extend to each of its stockholders owning two percent (2%) or more of the subscribed
capital stock, its directors, or officers shall be limited to an amount equivalent to the
respective outstanding deposits and book value of the paid-in capital contributions in
the bank.

Sec. 6. Loans or advances extended by rural banks organized and operated under this
Act shall be primarily for the purpose of meeting the normal credit needs of farmers,
fishermen or farm families owning or cultivating land dedicated to agricultural
production as well as the normal credit needs of cooperatives and merchants. In
granting of loans, the rural bank shall give preference to the application of farmers
and merchant whose cash requirements are small.

Loans may be granted by rural banks on the security of lands without Torrens Title
where the owner of private property can show five (5) years on more peaceful,
continuous and uninterrupted possession in concept of owner; or of portions of friar
land estates or other lands administered by the Bureau of Lands that are covered by
sales contracts and the purchase have paid at least five (5) years installment thereon,
without the necessity of prior approval and consent by the Director of lands; or of
portions of other estates under the administration of the Department of Agrarian

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Reform or other government agency which are likewise covered by sales contracts
and the purchasers have paid at least five (5) years installment thereon, without the
necessity of prior approval and consent of the Department of Agrarian Reform or
corresponding government agency; or of homesteads or free patent lands pending the
issuance of titles but already approved, are issued, the provisions of any law or
regulations to the contrary notwithstanding: Provided, That when the corresponding
titles are issued, the same shall be delivered to the Register of Deeds of the province
where such lands are situated to the annotation of the encumbrance: Provided, further,
That in the case of lands pending homestead of free patent titles, copies of notices for
the presentation of the final proof shall also be furnished the creditor rural bank and, if
the borrower applicants fail to present the final proof within thirty (30) days from date
of notice, the creditor rural bank may do so for them at their expense: Provided,
furthermore, That the applicant for homestead or free patent has already made
improvements on the land and the loan applied for is to be used for further
development of the same or for other productive economic activities: Provided, finally,
That the appraisal and verification of the status of a land is a full responsibility of the
rural bank and any loan granted on any land which shall be found later to be within
the forest zone shall be for the sole account of the rural bank.

The foreclosure of mortgage covering loans granted by rural banks and executions of
judgment thereon involving real properties levied upon by a sheriff shall be exempt
from the publications in newspaper now required by law where the total amount of
loan, excluding interest due and unpaid, does not exceed One hundred thousand pesos
(P100,000) or such amount as the Monetary Board may prescribe as may be
warranted by prevailing economic conditions. It shall be sufficient publication in such
cases if the notices of foreclosure and execution of judgment are posted in the most
conspicuous area of the municipal building, the municipal public market, the rural
bank, the barangay hall, the barangay public market, if any, where the land mortgaged
is situated during the period of sixty (60) days immediately preceding the public
auction or execution of judgment. Proof of publication as required herein shall be
accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale
or execution of judgment and shall be attached with the records of the case: Provided,
That when a homestead or free patent is foreclosed, the homesteader or free patent
holder, as well as his heirs shall have the right to redeem the same within one (1) year
from the date of the registration of the foreclosure in the case of land covered by a
Torrens Title: Provided, finally, That in any case, borrowers, especially those who are
mere tenants, need only to secure their loans with the procedure corresponding to their
share.

A rural bank shall be allowed to foreclose lands mortgaged to it: Provided, That said
lands shall be covered under Republic Act No. 6657.

Sec. 7. With the view to ensuring the balanced rural economic growth and expansion,
rural banks may, within limits and conditions fixed by the Monetary Board, devote a
portion of their loanable funds to meeting the normal credit needs of small business
enterprises: provided, That loans shall not exceed fifteen percent (15%) of the net
worth of a rural bank of such amount as the Monetary Board may prescribe as may be
warranted by prevailing economic conditions, and of essential enterprises or
industries, other than those which are strictly agricultural in nature.

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Sec. 8. To provide supplemental capital to any rural bank until it has accumulated
enough capital of its own or stimulate private investments in rural banks, the Land
Bank of the Philippines or any government-owned or controlled bank or financial
institution shall subscribe within thirty (30) days to the capital stock of any rural bank
from time to time in an amount equal to the total equity investment of the private
shareholders which shall be paid in full at the time of the subscription of such amount
as may be necessary to promote and expand rural economic development: Provided,
however, That shares of stock issued to the Land Bank of the Philippines, the
Development Bank of the Philippines or any government-owned or -controlled bank
or financial institution, may, pursuant to this section, at any time, be paid off at par
and retired in whole or in part if the rural bank has accumulated enough capital
strength to permit retirement of such shares; or if an offer is received from private
sources to replace the equity investment of the Land Bank of the Philippines, the
Development Bank of the Philippines or any government-owned or –controlled bank
or financial institution with an equivalent investment or more in the equity of such
bank. In case of retirement of stock or replacement of equity investment of the Land
Bank of the Philippines, the Development Bank of the Philippines or any government-
owned or –controlled bank or financial institution, the registered private shareholders
of the rural bank shall have the right of preemption within one (1) year from the date
of offer in proportion to their respective holdings.

Stock held by the Land Bank of the Philippines, the Development Bank of the
Philippines or by any government-owned or –controlled bank or financial institution,
under the terms of this section, shall be made preferred only as to assets upon
liquidation and without power to vote and shall share in dividend distribution from the
date of issuance in the amount of four percent (4%) on the first and second years, six
percent (6%) on the third and fourth years, eight percent (8%) on the fifth and sixth
years, ten percent (10%) on the seventh and eighth years and twelve percent (12%) on
the ninth to the fifteen years without preference: Provided, however, That is such
stock of the Land Bank of the Philippines, the Development bank of the Philippines or
any government-owned or –controlled bank or financial institution is sold to private
shareholders, the same may be converted into common stock of the class provide for
in Section 10 hereof: Provided, further, That pending the amendment of Articles of
Incorporation of the rural bank, if necessary, for the purpose of reflecting the
conversion into common stock of preferred stock sold to private stockholders, the
transfer shall be recorded by the rural bank in the stock and transfer book and such
shareholders shall thereafter enjoy all the rights and privileges of common
stockholders. The preferred stocks so transferred shall be surrendered and cancelled
and the corresponding common stocks shall be issued.

The corporate secretary of the rural bank shall submit to the Central Bank and the
Securities and Exchange Commission a report on every transfer of preferred stock to
private shareholders, and such report received by the Securities and Exchange
Commission shall form part of the corporate records of rural bank. When all the
prepared shares of stock of a rural bank have been sold to private shareholders, the
Articles of Incorporation of the rural bank shall be amended to reflect the conversion
of the preferred shares of stock into common stock. For this purpose, the President,
the corporate secretary, and a majority of the Board of Directors, shall be filed with
the Securities and Exchange Commission, which shall attach the same to the original
Articles of Incorporation on file with said office.

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The Securities and Exchange Commission shall not register and amended Articles of
Incorporation unless accompanied by the Certificate of Authority required under
Section 9 of Republic Act No. 337, as amended.

All supervised past due and restructured past due loans, including those covered under
existing rehabilitation programs of the Central Bank, and fifty percent (50%) of non-
supervised past due and restructured past due loans including accrued interest thereon
on rural banks organized under Republic Act No. 720, as amended, as of December
31, 1986, shall be converted into preferred stocks, of the rural bank and issued in
favor of the Land Bank of the Philippines, the Development Bank of the Philippines
or any government-owned or –controlled bank or financial institution: Provided, That
penalties thereon are hereby warned except accrued interest on arrearages: Provided,
further, That rural banks that prefer to settle their arrearages under a plan or payment
or a combination of both plan of payment and conversion may do so in accordance
with existing regulations and provisions of this Act: Provided, furthermore, That rural
banks shall match these preferred stocks with private equity in equal annual
installments over a period of fifteen (15) years to begin three (3) years after
conversion: Provided, finally, That the Central Bank, the Land Bank of the
Philippines, the Development Bank of the Philippines and any government-owned
and –controlled bank or financial institution shall continue to rediscount subject to
their respective programs, policies and guidelines against papers evidencing a loan
granted by a rural bank in order to achieve the declared policy and promote the
objectives of this Act.

Sec. 9. The Land Bank of the Philippines, the Development Bank of the Philippines,
or any government-owned or –controlled bank or financial institution may obtain
from any source as may be authorized under existing laws and regulations such
amount as it may require for the purpose of subscribing to the shares of stock of rural
bank: as provided in Section 13 of this Act.

Sec. 10. Stock certificates shall be issued to represent the contributions to capital
stock of the rural bank by the Government through the Land Bank of the Philippines,
the Development Bank of the Philippines or through any government-owned or –
controlled bank or financial institutions, and by qualified persons under such terms
and conditions as the Monetary Board mat prescribe. The powers of the Monetary
Board over rural banks shall extend to prescribing the amount, value and class of
stock issued by any rural bank, organized under this Act.

Sec. 11. The power to supervise the operation of any rural bank by the Monetary
Board as herein indicated shall consists in placing limits to the maximum credit
allowed to any individual borrower; in prescribing the interest rate; in determining the
loan period and loan procedures; in indicating the manner in which technical
assistance shall be extended to rural banks; in imposing a uniform accounting system
and manner of keeping the accounts and records of rural banks; in instituting periodic
surveys of loan and lending procedures, audits, test-check of cash and other
transactions of the rural banks; and, in general in supervising the business operations
of the rural banks.

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CENTRAL BANKING AND ITS MONETARY POLICIES

The Central bank shall have the power to enforce the laws, orders, instructions, rules
and regulations promulgated by the Monetary Board applicable to rural banks; to
require rural banks, their directors, officers and agents to conduct and manage the
affairs of the rural banks in a lawful and orderly manner, and, upon proof that the
rural bank of its Board of Directors, or officers are conducting and managing the
affairs of the banking in a manner contrary to the laws, orders, instructions, rules and
regulations promulgated by the Monetary Board or in a manner substantially
prejudicial in the interest of the Government, depositors or creditors, to take over the
management of such bank when specifically authorized to do so by the Monetary
Board after due hearing process until a new board of directors and officers are elected
and qualified without prejudice to the prosecution of the persons for such violations
under the provisions of Sections 32, 33 and 34 of Republic Act No. 265, as amended.

The management of the rural bank by the Central Bank shall be without expense to
the rural bank, except such as is actually necessary for its operation, pending the
election and qualification of a new board of directors and officers to take place of
those responsible for the violations or acts contrary to the interest of the Government,
depositors or creditors.

The director and the examiners of the department of the Central Bank charged with
the supervision of rural banks are hereby authorized to administer oaths to any
director, officer or employee of any rural bank or to any voluntary witness and to
compel the presentation of all books, documents, papers or records necessary in his or
their judgment to ascertain the facts relative to the true condition of any rural bank or
to any loan

Sec. 12. In addition to the operations especially authorized in this Act, any rural bank
may:

Accept saving and time deposit;

Open current or checking accounts, provided the rural bank has net assets of at least
Five million (P5,000,000) subject to such guidelines as may be established by the
Monetary Board:

Act as correspondent for other financial institutions;

Act as a collection agent;

Act as official depositary of municipal, city or provincial funds in the municipality,

city or province where it is located, subject to such guidelines as may be established
by the Monetary Board;

Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines,
the Development Bank of the Philippines, or any other banking institution, including
its branches and agencies. Said institution shall specify the nature of paper deemed
acceptable for rediscount, as well as the rediscount rate to be charged by any of these
institutions;

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 FINBUSMA | RESEARCH OUTPUT 4
CENTRAL BANKING AND ITS MONETARY POLICIES

Offer other banking service as provided in Section 72 of Republic Act No. 337, as
amended, and

Extend financial assistance to public and private employees in accordance with the
provisions of Section 5 of Republic Act No. 3779, as amended.

​ ​
With written permission of the Monetary Board of the Central bank, any rural bank
may act as trustee over estates or properties of farmer and merchants.

​
Nothing in this section shall be construed as precluding a rural bank from performing,
with prior approval of the Monetary Board, all the services authorized and mortgage
banks, of for commercial banks, under an expanded banking authority as provided in
Section 21-B of the same Act.

Sec. 13. Subject to such guidelines as may be established by the Monetary, rural
banks may invest in equities of the allied undertakings are hereinafter enumerated:
Provided, That: (a) the total investment in equities shall not exceed twenty- five
percent (25%) of the net worth of the rural bank; (b) the equity investment in any
single enterprise shall be limited to fifteen percent (15%) of the net worth of the rural
bank; and (c) the equity investment of the rural bank in any single enterprise shall
remain a minority holding in that enterprise: Provided, further, That equity investment
shall not be permitted in non-related activities.

Allied undertaking shall include:

banks, financial institutions and non-bank financial intermediaries;

Warehousing and other post-harvested facilities;

Fertilizer and agricultural chemical and pesticides distribution;

Farm equipment distribution;

Trucking an transportation of agricultural products;

Marketing and agricultural products;

Leasing; andOther undertakings as may be determined by the Monetary Board.

​ ​
Sec. 14. The Land Bank of the Philippines, the Development Bank of the Philippines
or any government-owned or –controlled bank or financial institution shall, within
sixty (60) days of certification of the Monetary Board, which shall be final, extend to
a rural bank a loan or loans from time to time repayable in ten (10) years, with
concessional rates of interest, against security which may be offered by any
stockholders or stockholders of the rural bank: Provided:​

banks, financial institutions and non-bank financial intermediaries;

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CENTRAL BANKING AND ITS MONETARY POLICIES

Warehousing and other post-harvested facilities;

Fertilizer and agricultural chemical and pesticides distribution;

Farm equipment distribution;

Sec. 15. All rural banks created and organized under the provisions of this Act shall
be exempt from the payment of all taxes, fees and charges of whatever nature and
description, except the corporate income tax and local taxes, fees and charges, for a
period of five (5) years from the date of commencement of operations.

All rural banks in operation as of the date of approval of this Act shall be exempt
from the payment of all taxes, fees and charges of whatsoever nature and description,
except the corporate income tax and local taxes, fees and charges, for a period of five
(5) years from the approval of this Act.

Sec. 16. In an emergency or when a financial crisis is imminent, the Central Bank
may give a loan to any rural bank against assets of the rural bank which may be
considered acceptable by a concurrent vote of at least four (4) members of the
Monetary Board.

In normal times the Central bank may rediscount against paper evidencing a loan
granted by a rural bank to any of its customers which can be liquefied for a period of
three hundred sixty (360) days: Provided, however, That for the purpose of
implementing a nationwide program of agricultural and industrial development, rural
banks are hereby authorized, under such terms and conditions as the Central bank
shall prescribe, to borrow, on a medium – or long-term basis, funds that the Central
Bank or any other government financing institution shall borrow from the
Development Bank of the Philippines or other international or foreign-lending
institutions for the specific purpose of financing the abovestated agricultural and
industrial program. Repayment of loans obtained by the Central Bank of the
Philippines or any other government financing institutions from said foreign-lending
institutions under this section shall be guaranteed by the Republic of the Philippines.

Sec. 17. Deposits of rural banks with government-owned or –controlled financial

institutions like the Land Bank of the Philippines, the Development Bank of the
Philippines, and the Philippine national Bank are exempted from the Single
Borrower’s Limit imposed by the General Banking Act.

In areas where there are no government banks, rural banks may deposit in private
banks more than the amount prescribed by the Single Borrower’s Limit subject to
Monetary Board regulations.

​ Sec. 18. To encourage consolidation and mergers of rural banks, if there are five (5)
or more rural banks within the region that merge and consolidate within three (3)
years from the enactment of this Act, the merged or consolidated entity will be given
the following incentives for a period of seven (7) years:​ ​

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CENTRAL BANKING AND ITS MONETARY POLICIES

Its deposit liabilities shall be subjected to only one-third (1/3) of reserves normally
required for rural banks;

Its reserve requirement can all be maintained under interest-bearing government

securities but kept unencumbered with government financial institutions or the
Central Bank; and

It shall have unrestricted branching right within the region, free from any assessment
or surcharge required in setting up a branch but under coordination with the Central
bank which will have to assess that there are qualified personnel, control and
procedures to operate the branch.

​
Sec. 19. The Central Bank of the Philippines shall extend technical assistance to any
rural bank in the process of organization or during the course of operations whenever
it is requested to do so or whenever the Monetary Board deems it necessary to
preserve, protect and promote the objectives of this Act: Provided, however, That said
assistance shall be without cost or obligation on the part of the rural bank.

Sec. 20. Any city or municipal trial court in his capacity as notary public ex officio
shall administer the oath to or acknowledgement the instruments of any rural bank
and to borrowers or mortgagors, fee from all charges, fees and documentary stamp tax,
collectible under existing laws, relative to any loan or transaction not exceeding Fifty
thousand pesos (P50,000), or such amount as the Secretary of Finance, upon
recommendation of the Monetary Board may prescribe as may be necessary to
promote and expand the rural economy.​

Sec. 21. Any Register of Deeds shall accept from any rural bank and its borrowers
and mortgagors for registration, free from all charges, fees and documentary stamp
tax, collectible under existing laws, any instrument, whether voluntary or involuntary,
relating to loans or transaction extended by a rural bank in an amount not exceeding
Fifty thousand pesos (P50,000): Provided, however, That charges, if any, shall be
collectible on the amount in excess of Fifty thousand pesos (P50,000); and that in
instruments related to assignments of several mortgage consolidated in a single deed,
if any, shall be levied only on the amount in excess of Fifty thousand pesos (P50,000)
of the consideration in the assignments of each mortgage, of such amount as the
Secretary of Finance, upon recommendation of the Monetary Board may prescribe as
may be necessary to promote and expand the rural economy.​

Sec. 22. Any rural bank organized under this Act may, pursuant to regulations
promulgated for the purpose by the Monetary Board, be required to contribute to the
Central Bank an annual fee to help defray the cost of maintaining the appropriate
supervising department within the central bank in an amount to be determined by the
Monetary Board but in no case to exceed one-fortieth of one percent (1/40 of 1%) of
its average total assets during the preceding year, as shown on its end-of-month
balance sheets, after deducting its cash on hand and amounts due from banks,
including the Central Bank.​

Sec. 23. Every individual acting as officer or employee of a rural bank and handling
funds or securities amounting to Five thousand pesos (P5,000) or more than one (1)

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CENTRAL BANKING AND ITS MONETARY POLICIES

year, shall be covered by an adequate bond as determined by the Monetary Board; and
the bylaws of the rural bank may also provide for the bonding of other employees or
officers of rural banks.​

Sec. 24. For the purpose of carrying out the objectives of this Act, the Central Bank is
authorized to require the services and facilities of any department or instrumentality
of the Government or any officer or employee of any such department or government
instrumentality.​

Sec. 25. Rural banks organized and operated under the provisions of this Act shall act
as agents of the Philippine National Bank, the Land Bank of the Philippines and the
Development Bank of the Philippines in places where these banks have no offices,
subject to accreditation guidelines.​

Sec. 26. Without prejudice to any prosecution under any law which may have been
violated a fine of not more than ten thousand pesos (P10,000) or imprisonment of not
less than six (6) months but not more than ten (10) years, or both, at the discretion of
the court, shall imposed upon:​

Any officer, employee, or agent of a rural bank who shall:

Make fake entries in any bank report or statement thereby affecting the financial
interest of or causing damage to, the bank or any person;

Without order of a court of competent jurisdiction, disclose any information relative

to the funds or properties in the custody of the bank belonging to private individuals,
corporations, or any other entity;

Accept gifts, fees or commission or any other form of remuneration in connection

with the approval of a loan from said bank; or

Overvalue or aid in overvaluing any security for the purpose of influencing in any
way the action of the bank on any loan; or

Appear and sign as guarantor, indorser, or surety for loans granted; or

Violate any of the provisions of this Act.

Any applicant for a loan from, or borrower of a rural bank who shall:

Misuse, misapply, or divert the proceeds of the loan obtained by him from its declared
purpose; or

Fraudulently overvalue property offered as security for loan from said bank; or

Give out or furnish false misrepresentation of material facts for the purpose of
obtaining, renewing, or increasing a loan or extending the period thereof; or

Attempt to defraud the said bank in the event of court action to recover a loan; or

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CENTRAL BANKING AND ITS MONETARY POLICIES

Offer any officer, employee, or agent of a rural bank as a gift, fee, commission, or
other form of compensation in order to influence such bank personality in approving
an application; or

​ Dispose or encumber the property or the crops offered as security for the loan.

Any examiner, or officer or employee of the Central Bank of the Philippines or other
department, bureau, office, branch or agency of the Government who is assigned to
examine, supervise, assist or render technical services to rural banks and who shall
connive or aid in the commission of the same.

Sec. 27. Any municipal trial court judge or register of deeds who shall demand or
accept, directly or indirectly, any gift, fee, commission or other form of compensation
in connection with the service, or the registration of documents required to be as
provided in Section 20 and by said register of deeds as proposed in Section 21 of this
Act, shall be punished by One thousand pesos (P1,000) or by imprisonment for not
more than one (1) year, or both, at the discretion of the court.

Sec. 28. Any bank not organized under this Act and any person, association, or
corporation doing the business of banking, not authorized under this Act which shall
use the words "Rural Bank" as part of the name or title of such bank or of such person,
association, or corporations, shall be punished by a fine of not less than Fifty pesos
(P50) for each day during which said words are so used.

Sec. 29. The Monetary Board of the Central Bank shall submit a report to the
Congress of the Philippines as the end of each calendar year of all the rules and
regulations promulgated by it in accordance with the provisions of this Act, as well as
its other actuations in connection with rural banks, together with an explanation of its
reasons therefor.

Sec. 30. If any provision or section of this Act or the application thereof to any person
or circumstances is held invalid, the other provisions or sections of this Act, and the
application of such provision or section to other persons or circumstances, shall not be
affected thereby.

Sec. 31. Republic Act No. _____, as amended, is hereby repealed. The provisions of
Republic Act No. 265, as amended, and Republic Act No. 337, as amended, insofar as
they are applicable and not in conflict with any provision of this Act, are hereby made
a part of this Act.

Sec. 32. This Act shall take effect upon its approval.​

Approved,

NEPTALI GONZALES

President of Senate

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CENTRAL BANKING AND ITS MONETARY POLICIES

RAMON V. MITRA

Speaker of the House of Representatives

This Act which is a consolidation of House Bill No. 28736 and Senate Bill No. 1554
was finally passed by the House of Representatives and the Senate on January 22,
1992.

CAMILO L. SABIO
Secretary of the Senate Secretary General
House of Representatives

Approved : April 02, 1992

CORAZON C. AQUINO
President of the Philippines​

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CENTRAL BANKING AND ITS MONETARY POLICIES

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