CONCEPT

OF
CENTRAL
BANKING
 WHAT IS CENTRAL BANK?

 The central monetary authority

which provides policy direction in
the areas of money, credit, and
banking. 
 It supervises the operation of
banks and regulates the activities of
non-bank financial intermediaries.
 WHAT IS CENTRAL BANK?

The bank which is responsible for

the financial and economical stability
of country.
It has a pivotal position in the
banking system and regulates and
formulates policies for the
scheduled commercial banks in the
country.
ORIGIN OF CENTRAL BANKS

The Riksbank of Sweden

- established in 1656 as a private bank
- reorganized in 1668 as a State bank
Bank of England
- organized in 1694 as a joint stock
company
- oldest real central bank
 ORIGIN OF CENTRAL
BANKS
The Bank of France
- it was created in 1800 mainly
from private capital and the rest
from government funds
- its founder is Napoleon
Bonaparte
 OTHER CENTRAL BANKS
 Bank of Netherlands (1814)
 National Bank of Austria (1817)
 Bank of Norway (1817)
At the end of 1800, almost all
countries in Europe and other parts
have organized their own central
banks.
ORIGIN AND GROWTH
 The bank of England came into being
as first ever central bank in 1694.
The central bank includes the issue
of currency notes.
But at later stages it was entrusted
with other crucial functions like credit
control, clearing house, management
of public debts.
ORIGIN AND GROWTH
Now a central bank has become a
must for every country and its
economy.
It controls other banks, inflation and
formulates its economic and fiscal
policies and advises the government
on foreign trade, development of
financial and capital market, balance
of trade, foreign aids etc.
ORIGIN AND GROWTH
 The world bank (IBRD) and
international monetary funds (IMF)
have their full control over all central
banks, especially those in the Third
World countries.
Every country, being the member of
the UN, has no option except to
follow the dictates of the IMF and
the World Bank.
 OBJECTIVE OF CENTRAL
BANKING
Regulating the economic activities- facilitate
flow of funds to promote economic
activities.
Formulate and conduct monetary policy to
generate maximum economic benefits.
Retain balanced growth, stabilize the price
level and control inflation.
Enhance foreign exchange earnings
through favourable promotion of foreign
trade.
 NATURE OF CENTRAL
BANKING
 It is most powerful economic
institutions that has been developed
to help society to manage its
collective financial affairs.
The activities of the central bank
regarded essential for the proper
functioning of the economy.
 NATURE OF CENTRAL
BANKING
 Almost all the central banks were
started as private owned banks and
concerned about profits and so, they
competed with commercial banks.
The central banks have crystallised
into a distinct entity of their own.
 NATURE OF CENTRAL
BANKING
A central bank is not a profit
maximizer.
It is basically concerned in
achieving monetary stability, full
employment, and economic
growth.
 MAIN FUNCTIONS OF
CENTRAL BANK
1. It acts as a lender of last resort, and
2. Controller of money supply

Central bank can be placed in two

broad categories.
• 1- Government’s bank
• 2- Banker’s bank
 FUNCTIONS OF CENTRAL
BANK
1. Government’s Bank
 Monopoly of note issue
 Controller of credit
 Custodian of foreign exchange
 Issue and management of public
debts
 Development of financial
institutions
 Monopoly of note issue
• Issue currency notes for the
country.
• Notes are issued on certain
principal including a fixed ratio of
a reserve of gold, silver and
approved foreign exchange.
 Controller of credit
• The central bank controls and
regulates credit money in the country
in order to expand or contract it to
maintain the requirement of economy.
• It controls:
o Bank rate policy
o Open market operation
o Bank reserve ratio
 Custodian of foreign
exchange
• Every country exports goods
and services to earn profit.
•This earned and other foreign
exchange is held in the custody
of the central bank.
 Issue and management of
public debts
• Central bank manage issue of
debts, payment of interest and
retirement.
• Pay annual interest and return
the principal amount on maturity.
 Development of financial
institutions
• Central bank is responsible to develop
financial institution which play vital role
in industrial, agriculture and capital
development of economy.
• It also facilitates the establishment
and running of money market and stock
exchange.
 FUNCTIONS OF CENTRAL
BANK
2. Banker’s bank
Capacity to performs valuable services to
its scheduled commercial banks.
 Lender of last resort
 Rediscounting bill of exchange
 Clearing housing services
 Cash reserve
 Counselling services
  Lender of last resort
• The central bank provides
loan to the bank in crises to
enable it to discharge its
obligation and thus prevents it
to go bankrupt.
 Rediscounting bill of exchange
  Clearing housing services
• Every bank receives cheques drawn on
other bank, because of which every bank
becomes creditor or debtor of other banks.
• All these cheques are sent to the central
bank where it settles all the accounts of the
bank.
• Clearing services is possible because the
central bank possess cash receiver of
commercial bank.
  Cash reserve
• Every bank is bound to
deposited a certain percentage
of all its deposits with the
central bank
• In this manner central bank
finds itself in better position to
control credit money.
  Counselling services
• The central bank offers advice
and counselling services in the
light of experts and advice
commercial banks to formulates
and readjust their polices.
 FUNCTIONS OF CENTRAL BANK

  Issue and Regulation of Currency

One of the most important functions
of a central bank is the issue and
regulation of currency.
It everywhere enjoys the monopoly of
note issue.
FUNCTIONS OF CENTRAL BANK
o  The central banks are vested with the monopoly
of the note issue for the following reasons.
• To insure uniformity in the note issue which will
facilitate trade and exchange within the country.
• To imprint the notes with a distinct prestige.
• To restrict or expand the supply of notes according
to the requirements of the economy.
• To bring stability in the monetary standard and
create confidence among the public.
• To influence and control credit creation by
commercial banks.
 THE CENTRAL BANK AND THE
ECONOMY
Economics - proper allocations and
efficient use of scarce resources to satisfy
human wants.
Through the powers and policies of a
central bank it can:
o Direct flow of money and credit into the
various sectors of the economy.
o Improve the social and economic
conditions of the poor.
 CENTRAL
BANKING
IN THE
PHILIPPINES
 A BRIEF HISTORY OF THE BANGKO
SENTRAL NG PILIPINAS
 Miguel Cuaderno – 1st governor of the
Central Bank.
– developed the concept of central bank
in 1933.
– chose the charter of the Central Bank of
Guatemala as the model for our Central
Bank.
 A Central Bank Council was formed in
August 1947.
 A BRIEF HISTORY OF THE BANGKO
SENTRAL NG PILIPINAS
 In 1948, President Manuel Roxas
submitted to Congress a bill establishing
the Central Bank of the Philippines. This
bill was to become Republic Act (RA) No.
265, also known as The Central Bank
Act.
 On June 15, 1948, the Charter of the
Central Bank was signed into law by
President Elpidio Quirino.
 A BRIEF HISTORY OF THE BANGKO
SENTRAL NG PILIPINAS
 On January 3, 1949, the Philippine
Central Bank was inaugurated and
formally opened.
 In 1900, Act No. 52, placed all banks
under the Bureau of Treasury.
 In February 1929, the Bureau of
banking took over the supervisions
of banks.
OBJECTIVES AND RESPONSIBILITIES
OF CBP
Original Objectives
 Maintenance of monetary stability in
the Philippines;
 Preservation of the international value
of the peso and its convertibility into
other freely convertible currencies; and
 Promotion of a raising level of
production, employment and real
income in the Philippines.
Amended Objectives
• To maintain internal and external
monetary stability n the Philippines, and
to preserve the international value of
the peso and the convertibility of the
peso into other freely convertible
currencies; and;
• To foster monetary, credit, and
exchange conditions conducive to a
balanced and sustainable growth of the
economy.
 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.
 GOVERNANCE OF THE BANK
THE GOVERNOR
Is the chief executive officer of the BSP and is required to direct and
supervise the operations and internal administration of the BSP.
A deputy governor heads each of the BSP's operating sector as
follows:
• Monetary Stability Sector 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.
• Supervision and Examination Sector enforces and monitors
compliance to banking laws to promote a sound and healthy
banking system.
• Resource Management Sector serves the human, financial and
physical resource needs of the BSP.
 FUNCTIONS AND OPERATION
Liquidity Management
o formulates and implements monetary policy
aimed at influencing money supply
consistent with its primary objective to
maintain price stability.
Currency issue
o 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.
 FUNCTIONS AND OPERATION
 Lender of last resort
o The BSP extends discounts, loans and
advances to banking institutions for
liquidity purposes.
Financial Supervision
o The BSP supervises banks and exercises
regulatory powers over non-bank
institutions performing quasi-banking
functions.
 FUNCTIONS AND OPERATION

Management of foreign currency reserves

o 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.
 FUNCTIONS AND OPERATION
Determination of exchange rate policy
o 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.
o Other activities, the BSP functions as the
banker, financial advisor and official depository
of the Government, its political subdivisions
and instrumentalities and government-owned
and - controlled corporations.
THANK YOU!
Presented by:
PRUDENTE, JEAN ERICALYN R.
GEROLAGA, ANA REIN
PAREDES, JOHANNA
VICERA, STEPHANIE
ESCALA, MICHELLE
GONAZAGA, MAYCHELLE
OROCAY, ANTHONY
BARIDON, FRANCIA
BUENAGUA, RYAN