THE BSP ORGANIZATIONAL STRUCTURE

FUNCTIONS OF THE BSP

 Bank of Issue
BSP has the monopoly of printing money bills and minting money coins.
This monopoly is designated to:
- ensure the uniformity of design and content of money;
- effect government supervision over money supply;
- give prestige and honor to the central bank; and
- become a good source of income for the government.
 Government’s Banker, Agent, and Adviser
BSP handles the banking accounts of government agencies and
instrumentalities. All government agencies deposit their funds with BP.
It provides foreign exchange to the government for the importation of
goods and services and for payment of foreign loans. If funds are not
sufficient for the needs of the country, BSP shall borrows from
international financial institutions like WB and IMF
 Custodian of the Cash Reserves of Banks
All banks are regulated to have adequate reserves in proportion to their deposit liabilities
with BSP to ensure availability of cash to depositors who wish to withdraw deposits. These
reserve requirements create the interbank call loans, that is, when one bank lacks funds to
comply with the reserve requirements of BSP, it borrows money from other banks’ reserves
with BSP for say overnight. The interest rate on these interbank call loans is called the reverse
repo rate (RRP), which is the overnight borrowing rate, the official interest rate in the
Philippines.
 Custodian of the Nation’s Reserves of International Currency
The early years of central banking required central banks to maintain a minimum reserve of
gold, and later of international currency, as a guarantee for its issuance of currency bills or
notes and deposit liabilities (cash reserves of commercial banks). This is designed to meet
problems relevant to balance of payments and maintaining the external value of the local
currency.
 Bank of Rediscount and Lender of Last Resort
The rediscounting function of the central bank means the central bank lends money to
banks in distress on the basis of their promissory notes or the promissory notes of the bank
borrowers. When banks grant loans to borrowers, borrowers execute a promissory note, which
the bank discounts. Interest is immediately deducted from the proceeds of the loans. The
process is known as discounting. These notes are presented by these banks to obtain a loan
from the central bank, that is why it is termed rediscounting, that is, the discounted notes are
again discounted.
 Bank of Central Clearance and Settlement
The central bank acts as sort of clearing house. This means that banks send representatives
to the clearing house at the central bank where claims are demanded by one bank against
another. Banks have their own boxes at the clearing house. All checks placed in the boxes are
payable to banks that cashed them. Through the process of bookkeeping (debits and credits),
banks’ claims against other banks are settled and cleared. These settlements are done through
the reserves that all the banks have with the central bank.
 Controller of Credit
Controlling money supply requires controlling credit. The higher the money supply in
circulation, the higher the prices of goods and services. Limited supply of money means lower
prices, which do not encourage production. Hence it is imperative for the central bank to
limit, not only the money supply, but also credit. BSP can control credit by:
 Increasing or decreasing interest rates;
 Increasing/decreasing the legal reserve requirements of banks;
 Regulating the margin requirements of stock exchange securities;
 Open market operations(buying or selling government securities;
 Imposing ceiling on total amounts bank can lend;
 Rationing central bank credit;
 Restricting imports;
 Selecting projects for funding; and
 Moral suasion (encouraging people and business to support and cooperate with central
bank policies and regulations).
 MONETARY POLICY AND THE FINANCIAL SYSTEM