ESTABLISHMENT OF BSP

• The Bangko Sentral ng Pilipinas (BSP) is the Central Bank of the Republic of
the Pilippines. The BSP was established as independent central monetary
authority pursuant to the Cnstitution and the New Central Bank Act of 1993 as
part of the restructuring of the Old Central Bank of the Philippines (CBP), which
was originally established in 1949. the need for such restructuring arose as a
result od substatial deficits in the CBP’s operations prior to 1993 that were
incurred in connection with:
1. certain quasi-fiscal activities conducted by the CBP with certain consistent with
policies of the National Government at the time (i.e., foreign exchange forward
cover contracts and swaps entered into by the CBP with certain banks and
government-owned and controlled corporations or GOCCs) and the CBP’s
assumption of foreign exchange liabilities of certain GOCCs and private sector
companies during the Philippines’ foreign exchange crises in 1980s;
2. Development banking and financing by the CBP
3. CBP’s conduct of open market operations and incurrence of high interest
expenses on the CBP’s domestic securities issued in connection with such
operations Under the New Central Bank At, the BSP was granted increased
fiscal and administrative autonomy from other sectors of government..
 THE MONETARY BOARD
• The powers and function of Bangko Sentral ng Pilipinas are exercised by
its Monetary Board, which has seven members appointed by the
President of the Philippines. Under the New Central Bank Act, one of the
Government sector members of the Monetary Board must also be a
member of the Cabinet designated by the President of the Republic,
which position is currently held by the Secretary of Finance.
• The Governor is the chief executive officer of Bangko Sentral and is
required to direct and supervise the operations and internal
administration of Bangko Sentral. However, the Governor may delegate
certain of his administrative responsibilities to other officers of Bangko
Sentral, such as the Deputy Governors and the Managing Directors of
the Departments within Bangko Sentral.
 BSP’S OBJECTIVES
• The BSP’s primary objectives is to maintain price stability conducive to
balanced and sustainable economic growth. The BSP also aims to
promote and preserve monetary stability and the convertibility of the
national currency.
1. 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.
2. Functions of the BSP
- Under the New Central Bank Act of 1993, the BSP performs the following
functions, all of which relate to its status as the Republic’s central
monetary authority.
3. Liquidity Management
- The BSP formulates and implements monetary policy aimed at
influencing money supply consistent with its primary objective to maintain
price stability.
4. 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.
5. Lender of last resort
- The BSP extends discounts, loans and advances to banking institutions
for liquidity purposes.
6. Financial Supervision
- The BSP supervises banks and exercises regulatory powers over non-bank
institutions performing quasi-banking functions.
7. 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.
8. 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.
9. Other Functions
- The BSP functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and GOCCs.
MONETARY POLICY
 MONETARY POLICY
• These are measures employed by the government to influence economic
activity, specifically by manipulating money supply and interest rate. To
achieve certain goals, monetary measures are frequently used in tandem
with fiscal policy to achieve certain goals.

Tools of Monetary Policy

• Open-market operation
• Reserve ratio
• Discount rate
 OPEN-MARKET RATIO OPERATION
• It is the buying and selling of government bonds to commercial banks and
to the general public.
• It is the most important instrument for influencing money supply.
Ex,. If BSP buys government securities, it pays check drawn on itself, with the
effect of creating money in the form of additional deposits by the sellers of
the securities in commercial banks. By adding to the cash reserves of the
commercial banks, the banks will increase their lending. The additional
demand for government bonds bids up their price and thus reduces their
yield (i.e., interest rate). The rationale of this operation is to ease the
availability of credit and reduce interest rates to encourages business to
invest more and increase consumers spending. The selling of government
securities by the central bank (BSP) achieves the opposite effect of
contracting money supply and increasing interest rates.
 RESERVE RATIO

• Commercial banks by law hold a specific percentage of their deposits and

required reserves with the central bank (BSP) either on the form of reserve

account cash. This reserve ratio acts as a brake on the lending operations of the

commercial banks. By increasing or decreasing the reserve ratio for lending, the

central bank can influence the amount of money available for lending, hence the

money supply.
 DISCOUNT RATE

• As a “lender of last resort” is one of the functions of a central bank. If

commercial banks are in immediate need for additional funds, the central

banks will make short-term loans to commercials. The commercial banks

issue a promissory note (IOU) drawn against itself and secured by

acceptable collateral. Just as commercial banks charge interest on their

loans to individuals or organization, the central bank charge interest on

loans they grant to commercial banks. This interest rate they charge is

called the discount rate.