FIMA 204 Monetary Policy & Central Banking PDF

Republic of the Philippines POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY AND FINANCE DEPARTMENT OF FINANCIAL MANAGEMENT Learning Material FIMA 204 Monetary P...

Republic of the Philippines POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY AND FINANCE DEPARTMENT OF FINANCIAL MANAGEMENT Learning Material FIMA 204 Monetary Policy and Central Banking Prof. Gem B. Galupar, CLSSGB Welcome Our Lord God in heaven. Thank you for the new day you've A moment of silence for a PRAYER bestowed upon us. Until this moment, we still have our borrowed life and strength from you. We worship and praise Your Holy Name. This moment, we will continue to study and acquire new knowledge from our Professor, classmates and the reporters. We also pray to end the conflict now happening in Middle East, here in the Philippines and to the rest of the world, for your children’s sake. We ask these in your name, AMEN Welcome Welcome back to the Class Review of last week’s lecture Last time, we finished the discussion about Financial Stability Today’s topic: Start of Efficient Payment and Settlement System The 3 golden stars represent the 3 pillars of BSP, as well as its commitment to promote and sustain a high quality of life for all Filipinos, across Luzon, Visayas, and Mindanao. 1 Price stability 2 Financial stability Efficient Payment and 3 Settlement System Efficient Payment and Settlement System Payments and Settlements Payment systems are essential to the effective functioning of financial systems worldwide. They provide the channels through which funds are transferred among banks and other institutions to discharge payment obligations arising from economic and financial transactions across the entire economy. An efficient, secure and reliable payment system reduces the cost of exchanging goods and services, and it is an essential tool for the effective implementation of monetary policy, and the smooth functioning of money and capital markets. It is this key role played by payment and settlement system (PSS) in the smooth functioning of an economy in general and its financial and monetary system in particular that gives the central bank (CB) a strong incentive for ensuring that an effective, reliable and secure payment and settlement system is in place. In the Philippines, the BSP takes the lead in promoting an efficient payments and settlements system by providing: a. the necessary infrastructure through the operations of the Peso Real Time Gross Settlement (RTGS) System or the PhilPaSSplus; and b. a policy and regulatory framework, also known as the National Retail Payment System or NRPS, to establish a safe, efficient and reliable retail payment system in the country. Efficient Payment and Settlement System Roles of BSP in the Payments and Settlement 1. Operator of the real time gross settlement system known as PhilPaSS The BSP, through its Payments and Settlements Department (PSD), serves as the payment system operator responsible for the operation and maintenance of PhilPaSS and its critical components. It ensures that the operation of PhilPaSS is continuous, safe and efficient so that time- critical payments are completed as expected to facilitate and enhance economic processes, manage risks, and absorb shocks in order to promote financial stability. 2. Provider of credit facilities to banks as a lender of last resort As payment systems affect the daily demand for liquidity of banks/financial institutions and may therefore affect the level of money market interest rates, the BSP, as a lender of last resort, provides the following liquidity tools to PhilPaSS participants: ​Intraday Liquidity Facility (ILF) – a fully collateralized facility established to maintain the smooth and efficient operation of the payments system in order to avoid interbank payments gridlock in the settlement process within PhilPaSS business hours. Overdraft Credit Line (OCL) – another collateralized facility which aims to assist bank experiencing unexpected or higher than usual volume of inward check transactions. The governing policies and procedures are provided under BSP Circular 681 in order to provide additional liquidity for banks encountering liquidity problems due to check clearing losses as well as protect the BSP against settlement exposures. 3. Overseer of the payments and settlements system The BSP, through the Payments Supervision and Licensing Department of the Payments and Currency Management Sector, oversees the payment systems in the country to ensure safeguards are in place to mitigate systemic risks arising from settlement, credit and liquidity risks of payments and settlement systems participants. Efficient Payment and Settlement System Roles of BSP in the Payments and Settlement 4. User of its own RTGS system The BSP, through its different departments, also make use of the payments and settlements system for the settlement of its own transactions with its stakeholders, such as: The automated collection and settlement of Financial Supervision Sector annual supervisory fees; Online processing of eRediscounting loan proceeds and collection of banks’ maturing loans with Department of Loans and Credit; Processing/posting of banks’ cash deposit and withdrawal transactions with BSP Greater Manila Regional Office; Investment/maturities of funds placed by the Provident Fund Office; and Trading transactions as well as payments of maturing RRP/SDA placements with Financial Markets 5. Initiate changes/reforms for the payments system The BSP initiates the conduct of studies/research relating to payments system to ensure that it grows and matures in accordance with the global standards. Among the studies conducted which initiated reform to the retail payment systems in the country is the National Retail Payment System. Efficient Payment and Settlement System Roles of BSP in the Payments and Settlement (in a summary video) Efficient Payment and Settlement System List of Operators of Designated Payment Systems Efficient Payment and Settlement System Laws, Rules, Regulations, and Guidelines (related to the operation of the Peso Real-Time Gross Settlement Payment System Efficient Payment and Settlement System Laws, Rules, Regulations, and Guidelines (related to the operation of the Peso Real-Time Gross Settlement Payment System Efficient Payment and Settlement System Laws, Rules, Regulations, and Guidelines (related to the operation of the Peso Real-Time Gross Settlement Payment System Efficient Payment and Settlement System Laws, Rules, Regulations, and Guidelines (related to the operation of the Peso Real-Time Gross Settlement Payment System Efficient Payment and Settlement System National Payment Systems Act (NPSA) Republic Act No. 11127, or the National Payment Systems Act (NPSA), provides a comprehensive legal and regulatory framework which supports the twin objectives of maintaining a payment system that is necessary to control systemic risk and providing an environment conducive to the sustainable growth of the economy. A payment system provides the channels through which funds are transferred among banks and other institutions to discharge payment obligations arising from economic and financial transactions across the entire economy. An efficient, secure and reliable payment system reduces the cost of exchanging goods and services. It is an essential tool for the effective implementation of monetary policy, and the smooth functioning of money and capital markets. The NPSA mandates the BSP to oversee payment systems in the Philippines and exercise supervisory and regulatory powers for the purpose of ensuring the stability and effectiveness of the monetary and financial system. Efficient Payment and Settlement System BSP Digital Payment Transformation Roadmap 2020-2023 I. Vision and Strategic Outcomes (Targets by 2023) The BSP’s thrust to promote financial inclusion and digitalization of payments are mutually reinforcing: they go hand-in-hand, each enabling the other. As the BSP continues to foster the growth and development of digital payment innovations through enabling policies and regulations, it also promotes further financial inclusion. Digital payment innovations lower transaction costs and eliminate the oft-cited barriers to owning a transaction account. The widespread use of the internet and emergence of technological innovations make digital payments ubiquitous, more accessible and affordable, thereby propelling the progressive shift towards a cash-lite economy. Moreover, with the sudden onset of the COVID-19 global pandemic, the shift towards digital payments has become an imperative as physical distancing rules become the norm under the “New Economy” environment. By using digital payments with due care and vigilance, Filipinos reduce the need for mobility and prevent health risks from face-to-face and over-the-counter (OTC) financial transactions. The greater usage of digital payments will also facilitate the growth of Fintech businesses engaged in e-commerce businesses as the consumption of goods and services is increasingly driven by online purchases. Efficient Payment and Settlement System BSP Digital Payment Transformation Roadmap 2020-2023 Efficient Payment and Settlement System BSP Digital Payment Transformation Roadmap 2020-2023 Lack of awareness is a main reason for not using a mobile phone or the internet for financial transactions. This is followed by lack of trust, weak signal or slow internet connection, and preference to transact at the bank or ATM. These reasons indicate an entrenched culture and mind-set of preferring various methods of payment other than digital means. Efficient Payment and Settlement System BSP Digital Payment Transformation Roadmap 2020-2023 In the first 5 years of operations, PhilPaSS processed about 1,400 transactions on average in a day, valued at Php 350 billion per day. In the last 5 years, PhilPaSS is already Page 10 of 38 processing more than 6,400 transactions valued at Php 1.3 trillion daily. Efficient Payment and Settlement System National Payment Systems Act (NPSA) in a summary video