Dreena Joyce Pascual Rosales :BBF 4 8s

June 29, 2013

Evolution of Central Bank And Bangko Sentral ng Pilipinas

Creating a Central Bank for the Philippines
A group of Filipinos had conceptualized a central bank for the Philippines as early as 1933. It came up with the rudiments of a bill for the establishment of a central bank for the country after a careful study of the economic provisions of the Hare-Hawes Cutting bill, the Philippine independence bill approved by the US Congress. During the Commonwealth period (1935-1941), the discussion about a Philippine central bank that would promote price stability and economic growth continued. The countrys monetary system then was administered by the Department of Finance and the National Treasury. The Philippines was on the exchange standard using the US dollarwhich was backed by 100 percent gold reserveas the standard currency. In 1939, as required by the Tydings-McDuffie Act, the Philippine legislature passed a law establishing a central bank. As it was a monetary law, it required the approval of the United States president. However, President Franklin D. Roosevelt disapproved it due to strong opposition from vested interests. A second law was passed in 1944 during the Japanese occupation, but the arrival of the American liberalization forces aborted its implementation. Shortly after President Manuel Roxas assumed office in 1946, he instructed then Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank. The establishment of a monetary authority became imperative a year later as a result of the findings of the Joint Philippine-American Finance Commission chaired by Mr. Cuaderno. The Commission, which studied Philippine financial, monetary and fiscal problems in 1947, recommended a shift from the dollar exchange standard to a managed currency system. A central bank was necessary to implement the proposed shift to the new system. Immediately, the Central Bank Council, which was created by President Manuel Roxas to prepare the charter of a proposed monetary authority, produced a draft. It was submitted to Congress in February1948. By June of the same year, the newly-proclaimed President Elpidio Quirino, who succeeded President Roxas, affixed his signature on Republic Act No. 265, the Central Bank Act of 1948. The establishment of the Central Bank of the Philippines was a definite step toward national sovereignty. Over the years, changes were introduced to make the charter more responsive to the needs of the economy. On 29 November 1972, Presidential Decree No. 72 adopted the recommendations of the Joint IMF-CB Banking Survey Commission which made a study of the Philippine banking system. The Commission proposed a program designed to ensure the systems soundness and healthy growth. Its most important recommendations were related to the objectives of the Central Bank, its policy-making structures, scope of its authority and procedures for dealing with problem financial institutions. Subsequent changes sought to enhance the capability of the Central Bank, in the light of a developing economy, to enforce banking laws and regulations and to respond to emerging central banking issues. Thus, in the 1973 Constitution, the National Assembly was mandated to establish an independent central monetary authority. Later, PD 1801 designated the Central Bank of the Philippines as the central monetary authority (CMA). Years later, the 1987 Constitution adopted the provisions on the CMA from the 1973 Constitution that were aimed essentially at establishing an independent monetary authority through increased capitalization and greater private sector representation in the Monetary Board. The administration that followed the transition government of President Corazon C. Aquino saw the turning

of another chapter in Philippine central banking. In accordance with a provision in the 1987 Constitution, President Fidel V. Ramos signed into law Republic Act No. 7653, the New Central Bank Act, on 14 June 1993. The law provides for the establishment of an independent monetary authority to be known as the Bangko Sentral ng Pilipinas, with the maintenance of price stability explicitly stated as its primary objective. This objective was only implied in the old Central Bank charter. The law also gives the Bangko Sentral fiscal and administrative autonomy which the old Central Bank did not have. On 3 July 1993, the New Central Bank Act took effect.

Chronology of Events: Central Banking in the Philippines

1900 Act No. 52 was passed by the First Philippine Commission placing all banks under the Bureau of Treasury. The Insular Treasurer was authorized to supervise and examine banks and banking activities.

February 1929

The Bureau of Banking under the Department of Finance took over the task of banking supervision. A bill establishing a central bank was drafted by Secretary of Finance Manuel Roxas and approved by the Philippine Legislature. However, the bill was returned by the US government, without action, to the Commonwealth Government.

1939

1946

A joint Philippine-American Finance Commission was created to study the Philippine currency and banking system. The Commission recommended the reform of the monetary system, the formation of a central bank and the regulation of money and credit. The charter of the Central Bank of Guatemala was chosen as the model of the proposed central bank charter.

August 1947

A Central Bank Council was formed to review the Commissions report and prepare the necessary legislation for implementation.

February 1948

President Manuel Roxas submitted to Congress a bill Establishing the Central Bank of the Philippines, defining its powers in the administration of the monetary and banking system, amending pertinent provisions of the Administrative Code with respect to the currency and the Bureau of Banking, and for other purposes.

15 June 1948

The bill was signed into law as Republic Act No. 265 (The Central Bank Act) by President Elpidio Quirino.

3 January 1949

The Central Bank of the Philippines (CBP) was inaugurated and formally opened with Hon. Miguel Cuaderno, Sr. as the first governor. The broad policy objectives contained in RA No. 265 guided the CBP in the implementation of its duties and responsibilities, particularly in relation to the promotion of economic development in addition to the maintenance of internal and external monetary stability.

November 1972

RA No. 265 was amended by Presidential Decree No. 72 to make the CBP more responsive to changing economic conditions. PD No. 72 emphasized the maintenance of domestic and international monetary stability as the primary objective of the CBP. Moreover, the CBPs authority was expanded to include not only the supervision of the banking system but also the regulation of the entire financial system.

January 1981

Further amendments were made with the issuance of PD No. 1771 to improve and strengthen the financial system, among which was the increase in the capitalization of the CBP from P10 million to P10 billion.

1986

Executive Order No. 16 amended the Monetary Board membership to promote greater harmony and coordination of government monetary and fiscal policies.

3 July 1993

The Bangko Sentral ng Pilipinas (BSP) was established to replace the CBP as the countrys central monetary authority.

Nature and Meaning of Central Banking

Overview of the BSP
SECTION 2. Creation of the Bangko Sentral. There is hereby established an independent central monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral. The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully subscribed by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos (P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner and form as the Government, through the Secretary of Finance and the Secretary of Budget and Management, may thereafter determine. The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines. It was established on 3 July 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. The BSP took over from the Central Bank of Philippines, which was established on 3 January 1949, as the countrys central monetary authority. The BSP enjoys fiscal and administrative autonomy from the National Government in the pursuit of its mandated responsibilities. The BSP Seal

The new BSP logo is a perfect round shape in blue that features three gold stars and a stylized Philippine eagle rendered in white strokes. These main elements are framed on the left side with the text inscription Bangko Sentral ng Pilipinas underscored by a gold line drawn in half circle. The right side remains open, signifying freedom, openness, and readiness of the BSP, as represented by the Philippine eagle, to soar and fly toward its goal. Putting all these elements together is a solid blue background to signify stability. Principal Elements: 1. The Philippine Eagle, our national bird, is the worlds largest eagle and is a symbol of strength, clear vision and freedom, the qualities we aspire for as a central bank. 2. The three stars represent the three pillars of central banking: price stability, stable banking system, and a safe and reliable payments system. It may also be interpreted as a geographical representation of BSPs equal concern for the impact of its policies and programs on all Filipinos, whether they are in Luzon, Visayas or Mindanao. Colors 1. The blue background signifies stability. 2. The stars are rendered in gold to symbolize wisdom, wealth, idealism, and high quality. 3. The white color of the eagle and the text for BSP represents purity, neutrality, and mental clarity. Font or Type Face Non-serif, bold for BANGKO SENTRAL NG PILIPINAS to suggest solidity, strength, and stability. The use of non-serif fonts characterized by clean lines portrays the no-nonsense professional manner of doing business at the BSP. Shape Round shape to symbolize the continuing and unending quest to become an excellent monetary authority committed to improve the quality of life of Filipinos. This round shape is also evocative of our coins, the basic units of our currency. The BSP Main Complex

The BSP Main Complex in Manila houses the offices of the Governor, the Monetary Board and the different operating departments/ offices. The Complex has several buildings, namely: 5-Storey building, Multi-storey building, the EDPC building and the BSP Money Museum, which showcases the Bank's collection of currencies.

The BSP Security Plant Complex

The Security Plant Complex which is located in Quezon City houses a banknote printing plant, a securities printing plant, a mint and a gold refinery. The banknote printing plant and the mint take care of producing currency notes and coins, respectively.

The BSP Regional Offices and Branches

The BSP has three regional offices performing cash operations, cash administration, loans and rediscounting, bank supervision and gold buying operations. These regional offices are located in La Union, Cebu City and Davao City.

There are also 18 BSP branches situated in Batac (Ilocos Norte), Tuguegarao City (Cagayan), Dagupan City (Pangasinan), Cabanatuan City (Nueva Ecija), Angeles City (Pampanga), Lucena City (Quezon), Naga City (Camarines Sur), Legazpi City (Albay), Dumaguete City (Negros Oriental), Bacolod City (Negros Occidental), Iloilo City (Iloilo), Kalibo (Aklan), Tacloban City (Leyte), Cagayan de Oro City (Misamis Oriental), Ozamiz City (Misamis Occidental), Cotabato City, General Santos City (South Cotabato) and Zamboanga City (Zamboanga del Sur). They perform cash operations, cash administration, and in certain areas, gold buying operations.

Major Function of Central Bank

Overview of Functions and Operations
Objectives
The BSPs primary objective is to maintain price stability conducive to a balanced and sustainable economic growth. The BSP also aims to promote and preserve monetary stability and the convertibility of the national currency.

Responsibilities
The BSP provides policy directions in the areas of money, banking and credit. It supervises operations of banks and exercises regulatory powers over non-bank financial institutions with quasi-banking functions. Under the New Central Bank Act, the BSP performs the following functions, all of which relate to its status as the Republics central monetary authority.

Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective to maintain price stability.

Currency issue. The BSP 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. Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity purposes. Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions. Management of foreign currency reserves. 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. Determination of exchange rate policy. The BSP 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. 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.