Monetary Policy and Central Banking

Marian V. Reyes - Lecturer

REVIEW OF THE FINANCIAL SYSTEM

NATURE AND NECESSITY OF THE FINANCIAL
SYSTEM
 It performs the economic function of channeling
funds from households, businesses, and
governments that have surplus funds (ie. savers)
to those with shortage of funds (ie. borrowers).
 It promotes economic efficiency by making it
easier to transfer funds from a person who has no
investment opportunities to one who has them,
making both lender and borrower better off.
ELEMENTS OF THE FINANCIAL SYSTEM

1. LENDERS and BORROWERS – surplus and

deficit units; ultimate lenders and borrowers
2. FINANCIAL INTERMEDIARIES – Financial
Institutions (banks, insurance companies,
mutual funds, and other institutions) – without
the financial markets will not be able to move
funds.
3. FINANCIAL INSTRUMENTS – to satisfy the
financial requirements of 1 & 2
ELEMENTS OF THE FINANCIAL SYSTEM

4. MONEY – medium of exchange

5. FINANCIAL MARKETS (bonds, stocks, and
foreign exchange) – markets by which funds are
transferred from depositors (surplus units) to the
borrowers (deficit units)
6. PRICE DISCOVERY – price of shares and the
price of debts (interest rate)
FLOW OF FUNDS IN THE FINANCIAL SYSTEM
Financial
FUNDS Intermediari FUNDS
es –Indirect
Finance

FUNDS
Lenders- Borrowers:
Savers: Financial Households
Households Markets –
Businesses
Businesses Direct
Government
Government FUNDS Finance FUNDS
Foreigners Foreigners
STRUCTURE OF THE PHILIPPINE FINANCIAL
SYSTEM
 Central Bank – The Bangko Sentral ng Pilipinas
is the central bank of the Philippines. It has
fiscal and administrative autonomy from the
government in the pursuit of its mandated
responsibilities
 Banking Institutions
 Private Banking
 Commercial Banks – an institution which accepts
deposits and makes loans.
STRUCTURE OF THE PHILIPPINE FINANCIAL
SYSTEM
Bangko Sentral ng Securities &
Pilipinas Exchange
Commission

Non-Bank
Banking Non-Bank Financial Financial
Others Institutions
Institutions Institutions (NBFIs)

Insurance
Universal Banks Pawnshops

Pre-Need

Commercial Banks Money Changers

Financing

Bank-affiliate
Thrift Banks
NBFIs
Lending

Rural Banks
Cooperatives
STRUCTURE OF THE PHILIPPINE FINANCIAL
SYSTEM
 Central Bank – The Bangko Sentral ng Pilipinas
is the central bank of the Philippines. It has
fiscal and administrative autonomy from the
government in the pursuit of its mandated
responsibilities
 Banking Institutions
 Commercial Banks – an institution which accepts
deposits and makes loans.
STRUCTURE OF THE PHILIPPINE FINANCIAL
SYSTEM
 Banking Institutions
 Universal Banks – offer a wide range of financial
services. This is a combination of commercial,
investment banking, and other activities including
insurance.
 Thrift Banks – mobilization of small savings, provide
loans with generally longer and easier terms.
 Rural Banks – ensures sufficient institutional credit for
agriculture and other rural sectors.
 Cooperative Banks – owned and controlled by a group of
people who use its services
 Microfinance Banks – provision of financial services to low
income clients,
ROLE OF BSP

 To promote and maintain price stability

 Promote financial stability through effective
supervision and regulation
 Ensure safety, soundness, and efficiency of
payments and settlements systems
ROLE OF THE WORLD BANK AND THE IMF

 Both have control over all central banks,

especially those in Third World countries.
 Every country being a member of the UN, has
to follow the dictates of the Work Bank (IBRD)
and IMF
THE WORLD BANK

 The World Bank Group has two ambitious

goals:
 Endextreme poverty within a generation
 Boost shared prosperity.
THE WORLD BANK GROUP
The World Bank Group consists of five organizations:
1. The International Bank for Reconstruction and
Development
The International Bank for Reconstruction and
Development (IBRD) lends to governments of middle-
income and creditworthy low-income countries.
2. The International Development Association
The International Development Association (IDA) provides
interest-free loans — called credits — and grants to
governments of the poorest countries.

>>Together, IBRD and IDA make up the World Bank.

THE WORLD BANK GROUP
3. The International Finance Corporation
The International Finance Corporation (IFC) is the largest global development
institution focused exclusively on the private sector. We help developing
countries achieve sustainable growth by financing investment, mobilizing
capital in international financial markets, and providing advisory services to
businesses and governments.
4. The Multilateral Investment Guarantee Agency
The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to
promote foreign direct investment into developing countries to support
economic growth, reduce poverty, and improve people’s lives. MIGA fulfills this
mandate by offering political risk insurance (guarantees) to investors and
lenders.
5. The International Centre for Settlement of Investment Disputes
The International Centre for Settlement of Investment Disputes (ICSID) provides
international facilities for reconciliation and arbitration of investment
THE INTERNATIONAL MONETARY FUND

 The IMF's primary purpose is to ensure the

stability of the international monetary system—
the system of exchange rates and international
payments that enables countries (and their
citizens) to transact with each other.
THE INTERNATIONAL MONETARY FUND

 Other Responsibilities:
 global monetary cooperation
 secure financial stability

 facilitate international trade

 promote high employment and sustainable

economic growth
 reduce poverty around the world
THE INTERNATIONAL MONETARY FUND

Why the IMF was created and how it works?

 The IMF, also known as the Fund, was conceived
at a UN conference in Bretton Woods, New
Hampshire, United States, in July 1944.
 The 44 countries at that conference sought to
build a framework for economic cooperation to
avoid a repetition of the competitive devaluations
that had contributed to the Great Depression of
the 1930s.
THE INTERNATIONAL MONETARY FUND
 Membership: 189 countries
 Headquarters: Washington, D.C.
 Executive Board: 24 Directors each
representing a single country or a group of
countries
 Committed amounts under current lending
arrangements (as of 9/8/16): US$159 billion,
of which US$144 billion have not been drawn
(see table).
END