Chapter 3 FM103 Banking Institutions: Central Banking Growth and Development PDF

FM103: MONETARY POLICY AND CENTRAL BANKING CHAPTER 3 BANKING INSTITUTIONS CENTRAL BANKING: GROWTH AND DEVELOPMENT INSTR. CYRIL MAE DE LEON, MBA  NATURE OF CENTRAL BANK The nature of a central bank involves a blend of regulatory oversight, monetary management, and economic stabilization...

FM103: MONETARY POLICY AND CENTRAL BANKING CHAPTER 3 BANKING INSTITUTIONS CENTRAL BANKING: GROWTH AND DEVELOPMENT INSTR. CYRIL MAE DE LEON, MBA  NATURE OF CENTRAL BANK The nature of a central bank involves a blend of regulatory oversight, monetary management, and economic stabilization roles. Its design is crucial for maintaining economic stability and fostering confidence in the financial system, which is achieved through a combination of independence, strategic objectives, and a range of operational tools. NSTITUTIONAL ROLE Monetary Authority in terms of managing country’s monetary policy Regulator and Supervisor in terms of banking system and financial stability Lender of Last Resort in terms of financial distress FUNCTION Implements Monetary Policy Issue of currency Foreign Exchange and Reserves Management Banking Services  NATURE OF CENTRAL BANK OBJECTIVES Maintain Price Stability Influence Interest Rates and the Money Supply to promote sustainable economic growth Ensure financial stability Promote high level of employment and reduce unemployment INDEPENDENCE AND ACCOUNTABILITY Can make decision based on economic data and objectives rather than short-term political considerations Accountable to the public and government institutions. OPERATIONAL MECHANISMS Policy tools: Interest Rates, Open Market Operations, Reserve Requirements Communicate their policy decisions and economic outlooks to manage expectations and guide economic behavior CENTRAL BANK DEFINITION A central bank is a financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the central bank is usually responsible for the formulation of monetary policy and the regulation of member banks. A central bank is a financial institution that is responsible for overseeing the monetary system and policy of a nation or group of nations, regulating its money supply, and setting interest rates. Central banks enact monetary policy, by easing or tightening the money supply and availability of credit, central banks seek to keep a nation's economy on an even keel. A central bank sets requirements for the banking industry, such as the amount of cash reserves banks must maintain vis-à-vis their deposits. A central bank can be a lender of last resort to troubled financial institutions and even governments.  ORIGIN OF CENTRAL BANK Early Banking Systems - The earliest forms of central banking can be seen in the practices of ancient civilizations. The Bank of England - The modern central banking system began with the establishment of the Bank of England in 1694. Created to help finance the government's war efforts against France, the Bank of England was given the power to issue currency and manage the nation's finances. Its role expanded over time to include regulating other banks and overseeing monetary policy. 19th Century Developments - During the 19th century, other countries established their own central banks, often inspired by the Bank of England. Functions and Evolution - The functions of central banks have evolved significantly. Initially focused on managing government debt and issuing currency, central banks now play crucial roles in monetary policy, financial stability, and economic regulation.  THE BANGKO SENTRAL AND THE ECONOMY MONETARY POLICY - Sets interest rates, Policy rate, Control Inflation and Stabilize the currency INFLATION CONTROL - One of the BSP’s primary objectives LONG-TERM FOCUS is to keep the manageable level. CURRENCY STABILITY - The BSP is responsible for maintaining the stability of the Philippine Peso. PERSONALIZED STRATEGIES FINANCIAL SYSTEM STABILITY - BSP regulates and supervises banks and other financial institutions to ensure their soundness and stability.  THE BANGKO SENTRAL AND THE ECONOMY PAYMENT AND SETTLEMENT SYSTEMS - BSP oversees the country’s payment and settlement systems, ensuring they are efficient, secure, and resilient. LONG-TERM FOCUS ECONOMIC RESEARCH AND DATA - BSP conducts research and collects data on various economic indicators. CUSTOMER PROTECTION - BSP also works to protect PERSONALIZED customers by STRATEGIES ensuring transparency and fairness in financial transactions and services. BANGKO SENTRAL NG PILIPINAS The Central Bank of the Republic of the Philippines was established on July 3, 1993 The BSP took over the Central Bank of the Philippines, which was established on January 3, 1949 It enjoys fiscal and administrative autonomy from the National Government  NEW LOGO The new BSP logo is a perfect round shape in blue that features three gold stars and a stylized JAMIE CHASTAIN Philippine Eagle rendered in a white strokes "This company has been invaluable - they've helped me streamline my finances, access the right financing, and plan for the future with confidence."  NEW LOGO 1. The Philippine Eagle, our national bird, is the world’s largest eagle and a symbol of strength, clear vision, and freedom. JAMIE CHASTAIN 2. The three stars represent the three pillars of central banking: price stability, stable banking system, and a safe and reliable payments system. Also, it can signify as a representation of BSP’s equal concern to Filipinos in Luzon, Visayas, and Mindanao. 3. Colors Blue Background à Stability "This company has been invaluable - they've helped Gold Stars à Wisdom, Wealth, Idealism, andmyHigh me streamline finances, Quality access the right financing, and plan for the future with confidence." White Eagle and Text for BSP à Purity, Neutrality, and Mental Clarity.  NEW LOGO 4. Font or Typeface, Non-Serif, bold for “BANGKO SENTRAL NG PILIPINAS” to suggest solidity, strength, and stability. The use of non- JAMIE CHASTAIN serif font portrays the no-nonsense professional manner of doing business at BSP. 5. Round Shape to symbolize the continuing and unending quest to become excellent monetary authority. "This company has been invaluable - they've helped me streamline my finances, access the right financing, and plan for the future with confidence." HISTORY OF CENTRAL BANKING IN THE PHILIPPINES 1993 A group of Filipinos had conceptualized a central bank for the Philippines as early as 1933. According to Fajardo (1994), Miguel Cuaderno, initiated the development of the concept of central bank in 1933. 1939 The Philippine legislature passed a law establishing a central bank as required by Tydings-Mcduffie act. President Franklin D. Roosevelt disapproved it due to strong opposition from vested interests. HISTORY OF CENTRAL BANKING IN THE PHILIPPINES 1944 A second law was passed during the Japanese occupation, but the arrival of the American liberalization forces aborted its implementation. 1946 President Manuel Roxas assumed office. He instructed the then Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank. He chose the charter of the Central Bank of Guatemala as the model for the charter of the Central Bank of the Philippines. HISTORY OF CENTRAL BANKING IN THE PHILIPPINES 1947 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 recommended a shift from the dollar exchange standard to a managed currency system. 1947 The Central Bank Council produce a draft and was submitted to Congress in February 1948. By June of the same year, the newly proclaimed President Elpidio Quirino affixed his signature on Republic Act No. 265, the Central Bank Act of 1948. 1949 The Central Bank of the Philippines was inaugurated and formally opened on January 3, 1949 with the first governor, Migueal Cuaderno, Sr.  BSP’S MISSION AND VISION MISSION VISION BSP is committed to promote and maintain price stability and provide proactive leadership in BSP aims to be a world-class monetary authority bringing about a strong financial system and a catalyst for a globally competitive economy conducive to a balanced and sustainable growth and financial system that delivers a high quality of of the economy. Towards this end, it shall conduct life for all Filipino sound monetary policy and effective supervision over financial institutions under its jurisdiction.  OBJECTIVES OF THE BSP 1. Maintain Monetary Policies Conducive to a balanced and sustainable growth of the economy 2. Maintain price stability in the country 3. Promote and Maintain Monetary Stability and the convertibility of the peso 4. Maintain stability of the Financial System 5. Provide payment and other Financial Services to the Government, the Public Financial Institutions, and Foreign Official Institutions 6. Supervise and Regulate Depository Institutions  FUNCTIONS OF THE 1. BANK OF ISSUE BSP 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 2. GOVERNMENT’S BANKER, AGENT, AND ADVISER BSP handles the banking accounts of government agencies and instrumentalities. All government agencies deposit their funds with BSP.  FUNCTIONS OF THE 3. CUSTODIAN OF THE CASH RESERVES OF BANKS BSP 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 4. 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 Guarantee for its Issuance of Currency, Bills, Notes, and Deposit Liabilities  FUNCTIONS OF THE BSP 5. 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 of bank borrowers. 6. BANK OF CENTRAL CLEARANCE AND SETTLEMENT The central bank serves as a clearing house. This implies that banks send representatives to the central bank's clearing house, where claims are demanded by one bank against another.  FUNCTIONS OF THE BSP 7. 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. THANK YOU ANY QUESTIONS?