Chapter 4 Functions and Operations of Bangko Sentral PDF

Functions and Operations of Bangko Sentral ng Pilipinas Prepared by: Ms. Leslie Ann U. Gamundoy Characteristics of Central Bank Profit motive is only secondary in the operations of central banks. Operations of central banks are more extensively controlled by go...

Functions and Operations of Bangko Sentral ng Pilipinas Prepared by: Ms. Leslie Ann U. Gamundoy Characteristics of Central Bank Profit motive is only secondary in the operations of central banks. Operations of central banks are more extensively controlled by government laws than other financial institutions. It is undesirable for central banks to deal directly with the public. Functions of Central Bank It is a bank of issue. It is the government’s banker, agent and adviser. It is the custodian of cash reserves of banks. It is the custodian of the nation’s reserves of international currency It is the bank of rediscount and lender of last resort. It is a bank of central clearance and settlement It controls credit Activities of the Central Bank Bank supervision/pawnshop supervision External debt regulation Money market involvement Foreign exchange regulations Export related measures Worker’s remittances Commodity classifications Starting over Established on July 03, 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993. Enjoys fiscal and administrative autonomy from the National Government in the pursuit of its mandated responsibilities.  Vision The BSP aims to be recognized globally as the monetary authority and primary financial system supervisor that supports a strong economy and promotes a high quality of life for all Filipinos. Mission To promote and maintain price stability, a strong financial system, and a safe and efficient payments and settlements system conducive to a sustainable and inclusive growth of the economy.  Objectives Maintain price stability conducive to a balanced and sustainable economic growth. Promote and preserve monetary stability and the convertibility of the national currency (peso). Responsibilities Provides policy directions in the areas of money, banking and credit. Supervises operations of banks and exercises regulatory powers over non-bank financial institution with quasi-banking functions. Organizational Structure The Monetary Board Chairman/ Governor, and Deputy Governor One member from Cabinet Five (5) members from Private Sector Other members One member from the Cabinet Carlos Dominguez III Five Members from the Private Sector 1.Antonio S. Abacan, Jr. 2. V. Bruce J. Tolentino. 3. Felipe M. Medalla. 4. Peter B. Favila. 5. Anita Linda Aquino. The Governor -7th Governor of the BSP and Chairman of Monetary Board Deputy Governor Monetary Stability Sector supervises the sector in maintaining internal and external monetary Francisco Dakila Jr. stability, liquidity, and preserving the convertibility of the peso. Deputy Governor Mamerto E. Tongonan-Payments and Currency Management Sector Tasked to address the interplay between digital money and physical currency, and support the digital transformation of the country’s financial services. Deputy Governor Chuchi G. Fonacier-Financial Supervision Sector Under her direct supervision are five subsectors which handle onsite examination and offsite surveillance (or integrated supervision) of BSFIs including specialized supervision of specific areas (i.e., anti-money laundering, trust, financial market operations, and information technology), credit information system infrastructure, policy studies/research, and supervisory data management. She is the permanent alternate of the BSP Governor in the Board of Directors of the Philippine Deposit Insurance Corporation (PDIC) and the National Development Corporation (NDC). Deputy Governor Eduardo G. Bobier-Corporate Services Sector was appointed Deputy Governor of the Corporate Services Sector on March 1, 2022. he was Assistant Governor of the Comptrollership Sub- Sector. Deputy Governor Deputy Governor for Regional Operations and Advocacy Sector Advocacies  BSP Initiatives on Microfinance Anti-Money Laundering Financial Literacy Economic Education Monetary Policy The primary objective of BSP’s monetary policy is to promote a low and stable inflation conducive to a balanced and sustainable economic growth. The adoption of inflation targeting framework for monetary policy aimed at achieving this objective. MONETARY POLICY To manage the supply and cost of money and credit What is Monetar To influence overall y demand for good and Policy? services To attain price stability MONETARY POLICY INSTRUMENT USED BY BSP Open Market Operations Acceptance of Fixed-Term Deposits Standing Facilities Other Liquidity Management Facilities The Inflation Target An approach to monetary policy that involves the use of a publicly announced inflation target set by the Government, which the BSP commits to achieve over a two-year horizon LOAN AND CREDIT OPERATIONS Rediscountin g Overdraft Credit Line Emergency Loans Facilities Regional Offices and Branches Davao Cebu La Union City City San Butuan Bacolod Fernando Branch Branch Branch Cagayan Iloilo Cabanatu De Oro Branch an Branch Branch Batac Cotabato Roxas Branch Branch Branch General Dagupan Dumaguet Santos Branch e Branch Branch Naga Ozamiz Tacloban Branch Branch Branch Lucena Zamboan Branch ga Branch Legazpi Branch Tuguegara o Branch ISSUES ON GOVERNMENT FINANCING IN THE PHILIPPINES A. Crowding out When government spending fails to increase overall aggregate demand because higher government spending causes an equivalent fall in private sector spending and investment. Question: Why does an increase in public sector spending by the government decrease the amount the private sector can spend? If government spending increases, it can finance this higher spending by: Increasing tax Increasing borrowing B. Debt Overhang refers to a debt burden so large that an entity cannot take on additional debt to finance future projects. Impact of higher government spending on aggregate demand Increasing tax. If the government increases tax on the private sector, e.g. higher income tax, higher corporation tax, then this will reduce the discretionary income of consumers and firms. Ceteris paribus, increasing tax on consumers will lead to lower consumer spending. Increasing borrowing. If the government increases borrowing. It borrows from the private sector. To finance borrowing, the government sell bonds to the private sector. This could be private individuals, pension funds or investment trusts. If the private sector buys these government securities they will not be able to use this money to fund private sector investment. Therefore, government borrowing crowds out private sector investment.