CENTRAL BANK OF THE PHILIPPINES

DEVELOPMENT OF CENTRAL BANKING

 The oldest central banks emerged in Europe because of the great need to protect the interests
of the bankers and to improve monetary and financial conditions

 The first central banks were privately-owned and were generally known as banks of issue or
national banks.

  a bank authorized by law to issue banknotes

 Later, they generally acquired the functions of central banking since the state granted them the
sole right of note issue and the authority to act as agent and banker of the government.

 The oldest central bank is the Riksbank Of Sweden  or simply Riksbanken(1656)

 However, Bank of England (1694) is considered as the first central bank because it developed
the fundamentals of central banking.

 In European countries, central banks were organized such as France (1800), Netherlands
(1814), and Norway (1816)

 On June 15, 1948, the Central Bank Act or the Republic Act No. 265 was approved. This Act
provides the creation of the Central Bank of the Philippines, which finally opened its doors to the
public on January 3, 1949.

 The capital of the bank, as provided by the Act, shall be ten billion pesos (P10,000,000,000),
with the initial subscription coming from the liquidated assets of the Exchange Standard Fund.

FUNCTIONS OF A CENTRAL BANK

1. It is a bank of issue - A central bank has a complete monopoly of note issue.

2. It is the government’s banker, agent and adviser
 Banker-banking accounts of government agencies, foreign exchange
 Agent – lends money, buys & sells securities, national debts
  Adviser – monetary and financial conditions
3. It is the custodian of cash reserves of banks
4. It is the custodian of the nation’s reserves of international currency – international reserves refer
to gold and foreign exchange like US dollar, Japanese Yen, German Mark
5. It is a bank of rediscount and lender of last resort – documents of indebtedness of loan
applicants which are presented to the central banks were discounted by the bank when it
granted the loans to the applicants.
6. It is a bank of central clearance and settlement – Philippine Clearing House Corporation
7. It controls credit – to regulate money supply
 interest rates, legal reserves requirement, margin requirements of stock exchange
securities, rationing central bank credit or imposing ceilings on total bank lendings, buying
& selling government bonds, restricting imports, selecting projects for funding, moral
suasion(persuading to support and cooperate w/monetary policies

THE NEW CENTRAL BANK

 Republic Act 7653 is known as the New Central Bank Act. Section I of RA 7653 states that the
state shall maintain a Central Monetary Authority (CMA) that shall function and operate as an
INDEPENDENT BODY in the discharge of its mandated responsibilities concerning money,
credit and banking. This is known as the Bangko Sentral ng Pilipinas hereafter to as the
Bangko Sentral.

 Capitalized at fifty billion pesos (P50,000,000,000)

 The Bangko Sentral shall provide policy directions in areas of money, credit and banking.

 It shall have supervision over the operations of banks and exercise such regulatory powers as
provided in the said Act and other pertinent laws over the operations of finance companies and
non-bank financial institutions performing quasi-banking functions, hereafter referred to as
quasi-banks.
MONETARY POLICY

THE OLD MONETARY BOARD

 The policy-making body of the Central Bank is the Monetary Board, which is composed of seven
(7) members. The Chairman of the Board is also the Governor of the Central Bank.

 Secretary of Finance
  Director General of the National Economic Development Authority (NEDA)

 Chairman of the Board of Investments

 Secretary of Budget and Management

 Two (2) appointed representatives from the private sector

Chairman of the Board has a term of six (6) years, while the representatives have four (4)

COMPOSITION OF NEW MONETARY BOARD OF BANGKO SENTRAL

 7 members appointed by the President of the Philippines for a term of six (6) years;

 The Governor of the Bangko Sentral who shall be the Chairman of the Monetary Board.

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

 Five (5) members who shall come from the private sector, all of whom shall serve full-
time.

MAJOR FUNCTIONS OF THE MONETARY BOARD

PRIMARY OBJECTIVE OF THE BSP

THREE PILLARS OF CENTRAL BANKING

FIRST PILLAR OF CENTRAL BANKING

The promotion of price stability helps:

SECOND PILLAR OF CENTRAL BANKING

REGULATION VS SUPERVISION

 Regulations – issuance of rules of conduct or the establishment of modes or standards of

operation for uniform application.
 Supervision – overseeing of operations of a financial institution to ascertain that such rules and
regulations are complied with.
TYPES OF EXAMINATION

 General or regular examination – once a year. Verification of assets, liabilities and capital
accounts, incomes and expenses and profitability.
 Special or interim examination – conducted often as necessary. Verification of loans or
deposits.
 Special investigation – not an examination. Arises when a complaint is received from a
borrower, a depositor, a stockholder, an employee, or even from anybody regarding the
operation of a financial institution.

WHAT ARE THE ECONOMIC BENEFITS OF BANK SUPERVISION AND REGULATION?

THIRD PILLAR OF CENTRAL BANKING

WHAT IS A PAYMENT SYSTEM

 WHY IS A PAYMENT SYSTEM
IMPORTANT?