CHAPTER 12: BANGKO SENTRAL NG PILIPINAS

The Bangko Sentral ng Pilipinas (BSP) is principally an institution designed to regulate the
monetary and financial systems. It normally has a policy board which serves as
the monetary authority. The BSP provides the staff to supervise and implement the policies
enunciated by the monetary authority. The BSP plays a vital role in the growth and development of
the country. It can achieve its objectives and regulate monetary and credit conditions of the
country through effective use of its monetary tools.

Global Problem, Global Solution

In the event of a severe economic downturn, the U.S., like other countries, would find it much
harder to export its goods and services around the world. According to the U.S. Chamber of
Commerce, 12 million American jobs depend on the trade, including one in five factory jobs. One
in 3 acres of U.S. farmland is planted for export, and many of the nation's biggest corporations,
from Coca-Cola to Microsoft and Google, depend on substantial revenues from overseas. Beyond
the immediate economic impact, there are already signs that this meltdown will have longer-term
repercussions. One is that policymakers everywhere will have to go back to the drawing board to
figure out a more effective system of financial-crisis management. "Governments are making the
same mistake over and over again. They're trying to deal with the crisis on a piecemeal basis,
says Dennis J. Snower, president of Germany's Kiel.

He advocates a far more ambitious solution, including the creation of a new international agency
that can act as a lender of last resort to stricken banks. In Washington, Robert B. Zoellick,
president of the World Bank, concurs that only a multinational solution can really work. "While
American eyes are on the intersection of Wall and Main Streets, there is much more to the story,”
he says. "The response to these crises will have to be larger and global."

Banks have become so big and so leveraged that their balance sheets can exceed the gross
domestic product of the country in which they are based. That's the case in Belgium, the
Netherlands and a host of smaller countries, including Iceland, where on Oct. 6 the Prime Minister
warned about the possibility of a "national bankruptcy" because several banks with assets larger
than the country's entire economy ran into trouble.

Another possible repercussion: a reexamination of the freewheeling, free market practices, what
the French like to call ‘Anglo-Saxon Capitalism', that led to this crisis. French President Nicolas
Sarkozy kicked off that debate as Wall Street was reeling from

The Confidence on Money

The BSP is the only authorized government entity to print money and is responsible for the proper
administration of the monetary banking credit system of the republic to achieve monetary stability
and create conditions conducive to economic development. As such, it preserves the confidence
of the people in money as a thing of value and essential institution of the economic system. Once
the trust is broken, money ceases to function as it should be, i.e., as a vehicle of economic
activities and pillar of the price
system. What are some instances of monetary management by monetary authorities that can
cause people to lose confidence in money and what are the probable effects? One example is the
unrestrained growth in money supply which causes severe inflation and distorts investments,
production, and employment. In this case, money tends to lose value and people prefer to tie up
with rapidly appreciating but nonproductive assets in real forms like jewelry and idle lands.

Another example is pervasive unchecked circulation of fake money. Likewise, money loses value
and may even be an exception than a rule as a medium of exchange.
Characteristics of a Central Bank

Central banks all over the world share a major characteristic. The following are the most important.

1. Publicly-owned. There are varieties of ownership patterns for central banks, but government
ownership is a common factor. The Central Bank of the Philippines is fully owned and controlled
by the government. This is likewise the case with many central banks founded after the Second
World War when many countries became politically independent.

2. Bank of currency issues and ultimate source of money. All central banks perform the note
issue function for the country. The notes are regulated in their supply by the government, which
may be represented by the monetary authority or by the requirements of the budget. In theory,
however, the central bank can provide all the money the government requires.

3. Banker's Bank. The old central banks evolved partly from the need for some
institution to become a bank for bankers. All central banks perform this function of servicing other
banks. This includes such activities as maintaining accounts for other commercial banks- in fact,
the other banks are required to do so, if only to deposit their reserves with the central bank.

4. Custodian of me country's reserves foreign currencies. Central banks naturally serve as the
keeper of the country's reserve of international currencies. The function of being custodian of
international reserves evolved from the note issue function and that of keeping the reserves of
other banks.

5. Regulation of monetary and financial activities. Most central banks are given the authority to
regulate the operations of all banks and other financial institutions in the
country. This includes the supervision of banks and other financial institutions to as- sure their
solvency and to protect the general public.

Among their duties related to this are the regulation of the condition for the establishment of new
banks and the prescription of qualifications for bank officers and directors; the determination of the
activities they can engage in; and the conditions for deposit-taking and loan-giving.

In general, these functions are inherent in the role given to the central bank as the principal
institution of the monetary and financial basis of the economy.

THE BANGKO SENTRAL NG PILIPINAS

The Bangko Sentral ng Pilipinas (BSP) was created by R.A. 7653, otherwise known as The New
Central Bank Act, which was passed by the House of Representatives and the Senate on June 10,
1993. It was signed into law on June 14, 1993 and became operational on July 3, 1993.

Sec. 2 of said Act states that “There is hereby established an independent central
monetary authority, which shall be known as the Bangko Sentral ng Pilipinas."

While there had been an existing Central Bank of the Philippines which was established in 1949
by virtue of R.A. 265, the new constitution which was ratified in 1986 had in one of its provisions,
the "creation of an independent Central Monetary Authority which shall provide policy directions in
the areas of money, banking, and credit and which shall have supervision over the operations of
the banks and exercise such regulatory powers that may be provided by the law over the
operations of finance companies and other institutions performing similar functions."

The objectives of the BSP are to maintain price stability and promote and maintain monetary
stability and convertibility of the peso.
RESPONSIBILITIES AND PRIMARY OBJECTIVES

The Bangko Sentral shall provide policy direction in the areas of money, banking and credit. It
shall have supervision over the operations of banks and exercise such regulatory powers as
provided in R.A. 7653 and other pertinent laws over operations of
finance companies and non-bank financial institutions performing quasi-banking functions,
hereafter referred to as quasi-banks.

The Objectives of the BSP under RA 7653 are:

1. To maintain price stability conducive to a balanced and sustainable growth of the economy.
2. To promote and maintain monetary stability and the convertibility of peso.

BSP stands ready to support activities that serve to strengthen the country's commercial linkages
with the world economy by:
1. Helping create a stable financial environment
2. Promoting liberal foreign exchange rules, and
3. Enhancing access to local and foreign
capital to support investment.

THE MONETARY BOARD

The powers and function of the Bangko Sentral shall be exercised by the Monetary Board,
composed of seven members appointed by the President of the Philippines for a term of six years.

The seven members are:

a. The Governor, who shall be the Chairman of the Monetary Board, The Governor of the Bangko
Sentral shall be subject to the confirmation by the Commission of Appointments.

b. A member of the Cabinet to be designated by the President of the Philippines.

c. Five member who shall come from the private sector, all whom shall
serve full time. Qualifications: The members of the Monetary Board must be natural born citizen of
the Philippines, at least 35 years of age, with the exception of the Governor who shall be at least
40 years of age, of good moral character of unquestionable integrity, of known recognized
competence in social and economic disciplines.

GUIDING PRINCIPLES OF MONETARY ADMINISTRATION

A. Domestic-Monetary Stabilization The Monetary Board shall endeavor to

control any expansion or contraction in monetary aggregates which is prejudicial to the attainment
or maintenance of price stability.

B. International Monetary Stabilization The Bangko Sentral shall exercise its power to preserve the
international value of the peso and to maintain its convertibility into other freely convertible
currency primarily for, although not necessarily limited to, current payments of foreign trade and
invisibles.

Actions When the International Stability of the Peso Is Threatened

Whenever the international reserve of the BSP falls to a level the Monetary Board considers
inadequate to meet the prospective net demands on the Bangko Sentral foreign currencies or
whenever the international reserve appears to be in imminent danger of failing to such level or
whenever the international reserve is falling as a result of payments or remittances abroad which
in the opinion of the Monetary Board, are contrary to the National welfare, the Monetary Board
shall:

a. take such remedial measures as are appropriate and within the powers granted to the Monetary
Board and Bangko Sentral under the provision of this act.

b. Submit to the President of the Philippines and to Congress a detailed report

which shall include, as a minimum, a description and analysis of:

1. the nature and causes of existing or imminent decline:

2. the remedial measures already taken or to be taken by the Monetary Board:
3. the Monetary Board, fiscal or administrative measures further proposed; and
4. the character and extent of cooperation required from government agencies for the
successful execution of policies of the Monetary Board.

If the resultant action fails to check the deterioration of the reserve position of the Bangko Sentral,
or if the deterioration cannot be checked except by the chronic restrictions on exchange and trade
transaction or by a sacrifice of the domestic growth of the economy, Monetary Board shall propose
to the President with appropriate notice to the Congress, such additional action as it deems
necessary to restore equilibrium in the international balance of payments of the Philippines.

The Monetary Board shall submit periodic reports to the President and to Congress until the threat
to the international monetary stability of the Philippines has disappeared.

OTHER MEANS OF REGULATIONS/SUPERVISIONS

The Bangko Sentral may, from time to time, issue circulars, circular letters, and memorandum to
all authorized banks regarding monetary policies, banking and credit
regulations and its influence on the Philippine Economy

OPERATIONS OF THE BANGKO SENTRAL

1. The Bangko Sentral prepares data and conducts economic research for the guidelines of the
Monetary Board in the formulation and implementation of its policies.

2. The BSP is authorized to request from government offices and instrumentalities, any data which
it may require for the proper discharge of its functions and responsibilities.

3. The BSP also promotes and sponsors the training of technical personnel in the field of money
and banking.

4. The BSP exercises supervision over, and conduct periodic or special examinations of banking
institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

5. The BSP has the sole power and authority to issue currency within the territory of the
Philippines.

6. The BSP may buy and sell gold in any form, subject to such regulations as the Monetary Board
may issue.

7. The BSP may engage in foreign Exchange transaction with:

- banking institutions operating in the Philippines:
-the Government, its political subdivision and instrumentalities foreign or international financial
institutions
- foreign governments and their instrumentalities; and other entities or persons which the Monetary
Board empowered with
authority.

8. The BSP may grant loans, rediscounts and discounts and advances to banking
institutions to influence the volume of credit consistent with the objective of price stability. The BSP
may extend loans and advances to banking institutions for a period of not more than seven days
without collateral for the purpose of providing liquidity to the banking system in times of need.

9. The BSP may collect interest and other appropriate charges on all loans and advances it
extends, the closure, receivership or liquidation of the debtor institution notwithstanding.

TOP MANAGEMENT OFFICIALS THE GOVERNOR

The governor is the chief executive of the Central Bank. His powers and duties are:

a. To prepare the agenda for the meetings of the Monetary Board and to submit for
the consideration of the Board the policies and measures which he believes are necessary in
carrying out the purposes and provisions of the Central Bank Act;

b. To execute and administer the policies and measures approved by the Monetary Board.

c. To direct and supervise the operations and internal administration of the Central Bank. The
Governor may delegate some of his administrative responsibilities to other
officers of the Bank, subject to the rules and regulations of the Monetary Board; and

d. To exercise such powers as may be vested in him by the Monetary Board

In addition, the Governor is the Chairman of the Board and he is empowered:

a. To represent the Monetary Board and the BSP in all dealings with other offices, agencies and
instrumentalities of the Government and with all other persons or entities without the approval or
the concurrence of any other agency of the Government
public or private, whether domestic, foreign or international;

b. To authorize, with his signature, contracts concluded by the Bangko Sentral ng Pilipinas, notes
and securities issued by the bank, the annual reports, balance sheet,
profit and loss statements, correspondence and other documents of the Bank. The signature of the
Governor may be facsimile when-
ever appropriate;

c. To represent the Bangko Sentral either personally or through counsel in any

legal proceedings or action; and

d. To delegate his power to represent the Bank, as provided in a, b, and c above, to other officers
of the Bank upon his own responsibility.

THE SENIOR DEPUTY GOVERNORS AND THE DEPUTY GOVERNORS

The Governor of Bangko Sentral, with the approval of the Monetary Board, can appoint one or
more Senior Deputy Governors and Deputy Governors, in a maximum number as may be
approved by the President of the Philippines. They shall perform duties as may be assigned by the
Governor and the Board. In the absence of the governor, designated by the Governor, acts as
chief executive of the bank. As such, he exercises the powers and performs the duties of the
Governor. Whenever the Governor of the Senior Deputy Governor is unable to attend meetings of
the government boards or councils in which he is an ex-officio member, a senior deputy Governor
or Deputy Governor, designated by the Governor, is vested with the authority to participate and
exercise the right to vote in such meeting. They shall have such
line or staff authority as may be delegated by the Governor and the Monetary Board.

At present, five Deputy Governors are normally assigned specific areas of responsibility or
functional sectors, which comprise the department(s) and office(s) of allied functions or operations.
These officials have the following duties:

a. To advise and assist the Governor and the senior deputy Governor on matters
pertaining to the sector's area of specialization.

b. To develop plans, programs and operating standards for the departments and
offices in his sector in the light of the overall Bank objectives, policies and programs;

c. To coordinate and oversee the programs, projects and operations of the departments and
offices under his sector, and

d. To perform such other functions and duties as may be assigned to him by the monetary board,
the Governor and Senior Deputy Governor.

THE SPECIAL ASSISTANTS GOVERNOR

The 17 special assistants to the governor hold essentially top policy advisory positions. In view of
their technical experience/competence, these officials normally also assist the Deputy Governors
either in supervising a group of departments/offices of like functions and operations delineated as
the functional sectors in administering special programs or functions which are not assigned to any
of the sectors.

ORGANIZATION AND FUNCTIONS

To facilitate planning, coordination and execution of programs with greater efficiency, economy
and effectiveness, the functions and operations of the Bank are distributed among its departments
and offices which are grouped into five functional sectors, namely:

 Research
 International Operations
 Domestic Operations
 Administrative Management Supervision
 Examination

There are also some offices which have not been brought out of these sectors, but instead been
placed directly under the supervision of the Governor and the Senior Deputy Governor. On the
other hand, the CB Provident Fund Office is a semi-autonomous body that serves the interests of
both the Bank and its personnel.

A. Research Sector

Under this sector are the departments of Economic Research (domestic and international) which
are entrusted with the preparation of data and the conduct of economic research for the guidance
of the Monetary Board in the formulation and implementation of its policies, as well as the External
Relations Office which is responsible for all the activities of the Bank regarding negotiations of
various bilateral and multilateral trade and economic agreements.

B. International Operations Sector

This sector is responsible for functions utilizing instruments primarily at maintaining external
monetary stability and liquidity and preserving the convertibility of the peso.
It consists of the following departments and office:

1. Current Imports and Commodity Classifications Office

2. Export Department
3. Foreign Exchange Department I
4. Foreign Exchange Department Il
5. Management of External Debt and Investment Accounts Department

C. Domestic Operations Sector

This sector is responsible for functions utilizing instruments primarily aimed at achieving internal
monetary stability. It also acts as the official depository of the national government and undertakes
for its fiscal agency in management of special funds, servicing of public debt and custody of
evidence of public indebtedness. The departments and offices under the Sector are:

1. Cash Department
2. Department of Loans and Credit
3. Government Securities Department

D. Administrative Management Sector

In this sector are integrated all auxiliary and staff functions necessary to achieve efficiency,
economy and effectiveness in the management of the Bank. It is composed of the different
departments and offices.

1. Accounting Department
2.Administrative Department
3. Building Maintenance Office
4. Building Services Office
5. Department of Personnel
6. Electronic Data Processing Center
7. Medical and Dental Unit
8. Security and Transport Department

E. Supervision and Examination Sector

This sector is charged with the supervision and periodic examination of all banking institutions,
including government credit institutions and non-bank financial intermediaries and entities
performing quasi-banking functions, in order to assure observance of pertinent laws, and the rules
and regulations promulgated by the Monetary Board. It is composed of the following departments
and office:
1. SES Department I
2. SES Department Il
3. SES Department III
4. SES Department IV
5. Supervisory Reports Office
6. Corporate Analysis Office

Units Directly Under the Supervision of the Governor

There are units which cannot be organizationally located under any particular sector
and which also need the direct supervision of the Governor. They are general counsel and legal,
security plant complex, public relations office.

Units Directly Under the Supervision of the Senior Deputy Governor

The Senior Deputy Governor, as the Chief Legal Adviser and concurrent acting General Counsel
and the Legal Department. In addition, he supervises the following units
to achieve greater operational and organizational coordination, to minimize communication
bottlenecks up and down the line, as well as to ensure the smooth implementation of projects;
Office of Regional Operations and Central Bank Regional Offices (Cebu, Davao, La Union and
Tacloban; Security Printing Plant, Mint and Gold Refinery and Office of General Services).

Provident Fund Office

The Provident Fund Office is a special unit attached to the Central Bank in 1965.
It is the implementing arm of the Board of Trustees which is responsible to the Monetary Board for
the management of the Central Bank Provident Fund, consisting of monetary
contributions made as well as the earnings derived from investments of the contributions.

Special Committees

There are special groups created from time to time by the Governor to undertake
specific purpose aimed at improving the policies/programs of the Bank. These commit-
tees are ad hoc in nature and are automatically dissolved upon termination of the purposes for
which they are created unless otherwise indicated. The purposes, functions and compositions of
these committees are contained in the different office orders creating them.

Organization of the Bangko Sentral

A. The Basic structure 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 Stability Sector, which takes charge of the formulation and
implementation of the BS's monetary policy, including serving the banking needs of all
banks through accepting deposits, servicing withdrawals and extending credit through the
rediscounting facility.

*The Supervision and Examination Sector, which enforces and monitors compliance to banking
laws to promote a sound and healthy banking system, and

*The Resource Management Sector, which serves the human, financial and physical resource
needs of the BSP.

B. The current members of the Monetary Board

-Amando M. Tetangco, Jr. Chairman
-Romulo L. Neri
-Ignacio Bunye
-Raul A. Boncan
-Juanita D. Amatong
-Alfredo C. Antonio
-Nelly F. Villafuerte

C. Microfinance

In 2000, the General Banking Law mandated the BSP to recognize microfinance
as a legitimate banking activity and to set 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 been the prime advocate for the development of microfinance.
To this end, the Bangko Sentral aims to:

1. provide enabling policy and regulatory environment;

2. increase the capacity of the BSP and banking sector on microfinance operations; and
3. promote and advocate for the development of sound and sustainable microfinance operations.

D. Anti-Money Laundering

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 (AMLA) was signed into law, prescribed penalties for such crimes committed and
formed the foundation of 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

Chairman and the Commissioner of the Insurance Commission and the Chairman of the Securities
and Exchange Commission as members. It acts unanimously in the discharge of its functions.

E. Governors

GOVERNORS OF THE CENTRAL BANK

TERMS STARTED TERMS FINISHED NAME

1949 1960 Miguel Cuaderno, Sr.
1961 1967 Andres V. Castillo
1968 1970 Alfonso Calalang
1970 1981 Gregorio S. Licaros
1981 1984 Jaime C. Laya
1984 1990 Jose B. Fernandez, Jr.
1990 1993 Jose L. Cuisia, Jr.

GOVERNORS OF THE BANGKO SENTRAL

1993 1999 Gabriel C. Singson

1999 2005 Rafael B. Buenaventura
2005 present Amando M. Tetangco, Jr.
F. The Security Plant Complex

The Security Plant Complex was formally established in 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, Torren tiles, treasury warrants, stocks and bonds, government contracts,
ration coupons, official ballots, election return forms, checks and other security printing or minting
jobs of the government.

Monetary Policies

The Bangko Sentral ng Pilipinas (BSP) uses monetary policies to regulate money through the
credit and banking system in order to attain the monetary stability conducive to economic
development. However, monetary authorities have to use instruments to make policies workable
and, therefore, realize objectives. The use of these instruments should be flexible enough to
contend with the dynamic forces that they direct.

Monetary policies are discussed in detail in the succeeding topics.

Readings: BSP Brings Price, Monetary Stability

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. has brought price and
monetary stability to the Philippine economy, which prepares the country to cope with the worst
global financial and economic crisis in the last 80 years.

Already, the monetary stability resulting from the BSP's policies and vigilant supervision over
banks have enabled domestic financial institutions to cope with the impact of the turmoil triggered
by the subprime crisis in the United States.

Under Tetangco, the inflation rate reached a record low of 2.8% (in 2007), interest rates hit a
record low of 3.36% (first half 2007), while the peso showed unusual strength against the U.S,
dollar.

Significantly, the economy grew at its highest (7.2% in terms of gross domestic product) in three
decades in 2007.