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Lecture 1: History & Nature of Central Banking o A joint Philippine-American Finance Commission was created to study the Central Bank, according to IMF is…...

Lecture 1: History & Nature of Central Banking o A joint Philippine-American Finance Commission was created to study the Central Bank, according to IMF is… Philippine currency banking system. An institution that manages the currency and 1946 – The charter of the Central Bank of monetary policy of a country/monetary union. Guatemala was chosen as the model of the A financial institution given privileged control proposed central bank charter. over the production and distribution of money Aug 1947 – A central bank council was formed to and credit for a nation (group of nations). review the Commission’s report and prepare the In modern economies, the central bank is necessary legislation for implementation. usually responsible for the formulation of Feb 1948 – President Manuel Roxas submitted to monetary policy and the regulation of member Congress a bill “Establishing the Central Bank of banks. the Philippines” National bank that provides financial and June 15, 1948 – The bill was signed into law as banking services for its government, and Republic Act No. 265 (The Central Bank Act) by commercial banking system. It also President Elpidio Quirino. implements monetary policy and issues Jan 3, 1949 – The Central Bank of the Philippines currency. (CBP) was inaugurated and formally opened with Nature and Characteristics of Central Banks: Hon. Miguel Cuaderno, Sr. as the first governor. Nov. 29, 1972 – Presidential Decree No. 72 Duties Functions emphasized the maintenance of domestic and Control and Monetary policy international monetary stability as the primary manipulate money Financial Stability objective of the CBP. Moreover, the CBP’s authority supply Reserve Management was expanded to include not only the supervision Regulate member Banking Supervision of the banking system but also the regulation of the banks through capital Payments System entire financial system. requirements, reserve Coins and Notes requirements, deposit Jan 1981 – Presidential Decree No. 1771 was made issuance guarantees. to improve and strengthen the financial system, Acts as an emergency among which was the increase in the capitalization lender to distressed of the CBP from ₱10 Million to ₱10 Billion. commercial banks 1986 – Executive Order No. 16 ammended the and other institutions. Monetary Board membership to promote greater harmony and coordination of government monetary and fiscal policies. History of Central Banking: July 3, 1993 – Republic Act No. 7653 was passed, 1668 – Sweden’s Risbank establishing the Bangko Sentral ng Pilipinas (BSP), 1694 – Bank of England replacing CBP as the country’s central monetary 1720 to 1721 – Banque Royale authority. 1767 – Caisse d’Escompte Feb 14, 2019 – Republic Act. No. 11211 was 1769 – Russian Assignation Bank passed, amending RA No. 7653. 1782 – Bank of Spain Lecture 2: Objectives, Characteristics & Important 1791 – First Bank of the United States Services of BSP 1800 – Banque de France 1816 to 1836 – Second Bank of the United States Primary Objectives of BSP: Start of 20th century – approximately 2/3 of Maintain price stability sovereign states did not have a central bank. Promote and maintain monetary stability and the Evolution of Central Banking in the Philippines: convertibility of the Philippine peso 1900 – Act. No 52 was passed by the first Section 3 of RA 7653, “The New Central Bank Act of the commission placing all banks under the Bureau of Philippines Responsibility and Primary Objective” Treasury. BSP shall provide policy directions in the areas of 1929 – The Bureau of Banking under the money, banking, and credit. Department of Finance took over the task of BSP shall have supervision over the operations of banking supervision. banks, and exercise such regulatory powers as 1939 – A bill establishing a central bank was provided in this Act and other pertinent laws over drafted by Secretary of Finance Manuel Roxas and the operations of finance companies and non- approved by the Philippine Legislature. bank financial institutions, performing quasi- banking functions, hereafter referred to as quasi-  banks, and institutions performing similar functions. Characteristics of BSP as a Central Bank Profit motive is only secondary Operations are controlled by government laws Does not deal directly with the public Functions of the BSP 1. It is a bank of issue a. BSP has the sole power to issue notes/coins i. For uniformity ii. Effect government supervision over the money supply iii. Provide a source of income iv. Reduce printing expenses on the The New Organizational Structure of the BSP part of the government. 2. It is the: Financial Supervision Sector (FSS) – responsible a. Government’s Banker for the regulation of banks and other BSP- i. Responsible for managing all the supervised financial institutions. Oversight and account transactions of the supervision of financial technology and payment Government. systems b. Agent of the Government Monetary Economics Sector (MES) – responsible i. Act in an official representative for the operations/activities related to monetary department of a government. policy formulation, implementation, and c. Adviser to the Government assessment. 3. It is the custodian cash reserves of banks Corporate Service Sector – responsible for the 4. International Reserves Management effective management of corporate strategy and 5. Lender of the last resort communications, as well as the BSP’s human, a. The BSP extends discounts, loans and financial, technological, and physical resources to advances to banking institutions for support the BSP’s core functions. liquidity purposes. 6. It is a bank of central clearance and settlement The Members of the Monetary Board 7. Determination of exchange rate policy Chairman – Eli M. Remonola Jr. 8. Controls credit. Monetary Board Organizational Structure of the BSP o Ralph G. Recto ▪ current secretary of the Monetary Board Department of Finance (DOF) Governor o Benjamin E. Diokno Sector: ▪ Former Secretary of Finance o Deputy Governor o V. Bruce J. Tolentino Subsector: o Anita Linda R. Aquino o Senior Assistant Governor o Romeo L. Bernardo o Assistant Governor/Managing Director ▪ Former undersecretary of DOF Department/Office: ▪ Worked at World Bank, IMF, Asian o Senior Director/Director Development Bank Group: o Rosalina V. De Leon o Deputy Director Division: Lecture 3: The BSP and the Means of Payment o Manager Means of Payment A broad term covering both payment instruments (banknotes and coins, cards, cheques, credit transfers, direct debits and so on) and money (fiduciary money or scriptural money, i.e. bank account balances), without distinguishing between the two. History of the Philippine Currency American Period 1900 – 1941 o Philippine Coinage Act of 1903 Early Philippine History (c. 900 AD – 1565) o Pre-hispanic period ▪ Purchase and trade before the spanish era envolves barter. o Barter rings o Pilocintos The Japanese Occupation 1942 – 1945 o The “Mickey Mouse” money Spanish Occupation (1521 – 1897) o Pesos Fuertes o Guerilla Pesos Modern currencies (1946 to present) o English Series (US dollar alike) o Pilipino Series o Macuquintas o Dos Mundos (1732 – 1772) o Ang Bagong Lipunan Series o Queen Isabella II o Alfonso XII o New Design Series Revolutionary Period (1898 – 1899) o New Generation Currency Series o Republica Filipina – papel Moneda de Un Peso and Cinco Pesos Justification of the power to issue notes and coins which have lost more than two-fifths (2/5) of their surface Under what authority does BSP issue currency? or all of o The Bangko Sentral ng Pilipinas has the the signatures inscribed thereon. exclusive power and authority to issue coins and notes for circulation in the What is unfit currency? Philippines. What is the legal tender limit of Philippine coins Contains heavy creases which break the fiber of per transaction? the paper and indicate that the disintegration has o Section 52. Legal Tender Power begun. o 2k pesos per transaction Badly soiled/contaminated and/or with writings How does BSP determine the volume/value of Limped/lupaypay like appearance notes and coins to be issued annually? Stains o MB approves the volume/ value of notes With faded print and coins to be issued annually upon ***Should give to banks to be exchanged. recommendation of the Currency Management Committee (CUMC) based For coins: on forecasting methodology approved by MB. Is bent or twisted out of shape, show signs of o Macro-economic factors that determine corrosion demand for currency: It has been considerably reduced in weight by ▪ movements in GDP natural abrasion/wear and tear. ▪ inflation dynamics Lecture 4 & 5 – Domestic and International Monetary ▪ currency handling practices of Stabilization of the BSP; BSP Management of Monetary banks Aggregates Currency Life Cycle Money Aggregates - Monetary aggregates are the money 1. Production circulating in an economy to satisfy its current monetary 2. Distribution needs. 3. Deposit and Verification M1: Narrow Money 4. Anti-counterfeiting Operations o Includes currency in circulation. These are 5. Retirement funds readily available for spending. Demonetization M2: Broad Money o includes a broader set of financial assets The process by which a central bank removes the held principally by households. This monetary value of a legal tender currency it issues. contains all of M1 plus peso saving Demonetized currencies are no longer accepted as deposits (money market deposit payment for goods and services. accounts), time deposits, and balances in Other Pertinent Law retail money market mutual funds. M3: Broad Money Liabilities Section 54. Printing of Notes and Mining of Coins - The o Broad Money Liabilities include M2 plus Monetary Board shall prescribe the amounts of notes and money substitutes such as promissory coins to be printed and minted, respectively, and the notes and commercial papers conditions to which the printing of notes and the minting of M4: Liquidity Money coins shall be subject. o These include M3 plus transferable deposits, treasury bills, and deposits held The Monetary Board shall have the authority to contract in foreign currency deposits. Almost all institutions, mints or firms for such operations. All short-term, highly liquid assets will be expenses incurred in the printing of notes and the minting included in this measure. of coins shall be for the account of the Bangko Sentral. Effect of Money Supply on the Economy Section 56. Replacement of Currency Unfit for Circulation - The Bangko Sentral shall withdraw from Increased money supply = lower interest rate, more circulation and shall demonetize all notes and coins which investment. for any reason whatsoever are unfit for circulation and shall replace them by adequate notes and coins: Provided, Increased consumer spending however, That the Bangko Sentral shall not replace notes Business booms and coins the identification of which is impossible, coins Speed of production of goods and services > money supply which show signs of filing, clipping or perforation, and notes = increased price of goods. Factors Affecting Money Supply 2. Normal, Special, & Emergency Credit Operations Banknotes and coins that are released by BSP Normal Credit Operations Loans lent by banks Normal credit operations are standard practices Reserve requirements conducted by the Bangko Sentral ng Pilipinas (BSP) to Policy rates provide credit facilities to Philippine banking institutions. Open market operations Authorized Types of Operations Contractionary Commercial Credit - Credit instruments for When there is too much money in the economy, BSP import/export, domestic product sales within the tightens the monetary policy (interest rate), which will lower Philippines, or storage of insured/deposited goods inflation. with maximum maturity of 180 days. Higher interest rate Production Credits - Credit instruments related to Higher cost of borrowing production/processing of agricultural, animal, Investment growth will be slower mineral, or industrial products with a maximum Consumption growth will be slower maturity of 360 days from date of rediscount. Aggregate demand growth will be slower Other Credits - The Bangko Sentral may rediscount special credit instruments, with funds Lower Inflation from non-inflationary sources, in accordance with Less spending rules and regulations which the Bangko Sentral Expansionary shall prescribe. Advances - Loans against specific collaterals for When there is “too little money” in the economy, this fixed periods (up to 180 days, except for some): dapens the demand for goods and services, BSP loosens o Gold coins/bullion the monetary policy to expand money supply. o Securities of BSP or other solvent Lower interest rate institutions More lending/borrowing o Various credit instruments Less savings o Government Securities maturing within 3 years More spending o Negotiable bonds by Philippine Expands market operation Government Entities, matures up to 10 Inflation Targeting years. 1. Government sets inflation target, BSP announces Special Credit Operations inflation target Special Credit Operations are designed for the 2. BSP assesses monetary conditions and forecasts purpose of providing liquidity to the banking system in times inflation of need for a period of not more than seven (7) days without 3. Is the inflation forecast in line with the target? any collateral. a. If yes, no change in policy settings b. If no, BSP adjusts policy settings Emergency Credit Operation 4. BSP communicates through press statements, highlights of Monetary Board meetings, inflation The Monetary Board with 5 members' vote can reports, and open letter to the President. authorize the Bangko Sentral to grant extraordinary loans or advances to banking institutions secured by assets. Group 1 – BSP Loan to Banks and Other Financial Institutions 3. Credit Terms I. BSP Credit Terms 1. Credit Policy A credit term is a credit agreement specifying that the buyer is required to pay the seller within a certain period Guiding Principles and any different circumstances linked with the extension of a credit period to the buyer. The purpose of this Act's current article is to empower the Bangko Sentral to grant loans, advances, Reasons for BSP extending its credit to banks/other discounts, and rediscounts to banking institutions. financial institutions Their capacity to extend these will be utilized to influence the volume of credit in a way that aligns with to influence the volume of credit the goal of price stability and maintain financial to manage liquidity stability  to prevent a banking crisis to maintain sufficient 1816-1836: A Second Try Fails international reserves to meet any foreseeable net 1836-1865: The Free Banking Era demands for foreign currencies 1863: The National Banking Act to ensure the smooth operation of the government 1873-1907: Financial Panics and the financial system 1913: The Federal Reserve System is Born 1914: Open for Business Three Categories of Credit Facilities 1920s: Beginning of Open market Operations Rediscounting - a standing credit facility the BSP 1929-1933: The Market Crash and the Great provides to help banks meet temporary liquidity Depression needs by refinancing the loans they extend to their 1933: The Depression Aftermath clients. It is one of the monetary tools of the BSP 1935: More Changes to Come that regulates the level of liquidity in the financial 1970s-1990s: The Fed Faces sort of challenges system. September 11, 2001, Summer 2007 - Summer o Peso Rediscount Facility 2009: Great Recession o Exporters Dollar and Yen Rediscount 2020 and Beyond: Global Pandemic Facility Overdraft Credit Line - The BSP imposes a ceiling 7. Functions and Roles on the amount of overdraft a bank may incur due to failure to cover clearing losses through interbank The Federal Reserve borrowings and/or repurchase agreements with conducts the nation's monetary policy; BSP. promotes the stability of the financial system; Emergency Loans - The financial assistance shall promotes the safety and soundness of individual be limited to the amount needed by the applicant financial institutions; bank to overcome the emergency but shall not fosters payment and settlement system safety and exceed 50% of its deposits and deposit efficiency; and substitutes. promotes consumer protection and community 4. Open Market Operations (OMO) development. It refers to the buying and selling of government 8. Organization Chart securities by the Bangko Sentral ng Pilipinas (BSP) as part of its monetary policy implementation, Board Appointment influencing the underlying demand and supply conditions for central bank money. The seven members of the Board of Governors of Buying securities increases economic activity the Federal Reserve System are nominated by the President while selling securities decreases economic and confirmed by the Senate. activity. Board Responsibilities Its Importance Usage The Board of Governors of the Federal Reserve Influence money supply System oversees the operations of the 12 Reserve Banks, Manage interest rates supervises and regulates certain financial institutions and Control inflation activities, and provides guidance and oversight for lending and financial services provided by the Reserve Banks. The Maintain financial stability Board also has broad oversight responsibility for Reserve Operations used by BSP in OMOs Banks' operations, including services to depository institutions and the U.S. Treasury, and examination and Reverse Repurchase / Repurchase transactions supervision of financial institutions. Issuance of BSP Securities Outright purchases and sales of securities Members of the Board of Governors Foreign Exchange Swaps Jerome H. Powell, Chair Philip N. Jefferson, Vice Chair 5. Current Events Related to the topic Michael S. Barr, Vice Chair for Supervision US Federal Reserve The Federal Reserve Act of 1913 Michelle W. Bowman established the Federal Reserve System as the central bank Lisa D. Cook of the United States. Adriana D. Kugler Christopher J. Waller 6. History 1775-1791: U.S Currency 1791-1811: The First Attempt at Central Banking Group 2 – Custodian Cash Reserve of Bank & Non-Bank Types of Bank Reserves of Four Lines of Deposits Institutions 1. Savings Deposits What is Cash Reserve? a. Required Reserves: i. keep a certain percentage of The funds held by financial institutions to meet any savings deposits as reserves. large and unexpected demand for withdrawals, b. Excess Reserves: stabilize financial system, and implement i. cover unexpected withdrawals or monetary policies effectively. opportunities for profitable o Can be in form of cash deposits, or highly lending. liquid assets c. Interest Bearing Reserves: Centralized Cash Reserves i. to generate income for the bank while maintaining liquidity. Centralized cash reserves refer to funds held in a 2. Checking Deposits central location, typically by the central bank, to a. Operational Reserves ensure liquidity and stability in the financial i. Cover day-to-day transactions. system. b. Legal Reserves Benefits: i. Banks are to maintain a fraction of o Enhanced liquidity management checking deposits as reserves. o Streamlined operations c. Non-Interest Bearing Reserves o Improved risk mitigation 3. Fixed Deposits a. Maturity Reserves Role of Centralized Reserves in Mitigating Risks i. to ensure that the bank can meet Bank Runs - Centralized reserves provide a source the payout obligations when of liquidity for banks facing sudden withdrawal thefixed deposit term ends. demands. b. Liquidity Reserves Currency Crises - Centralized reserves help i. to manage premature defend against currency crises by providing the withdrawals which may come central bank with the necessary resources to with penalties. intervene in the foreign exchange market. c. Capital Reserves Liquidity Shortages - Centralized reserves act as a i. Cover potential losses backstop to ensure the smooth functioning of 4. Demand Deposits interbank lending and payment systems. a. Immediate reserves i. Ensures that all withdrawals can be met instantly Role of BSP in Securing and Facilitating Reserves b. Compensating Balances i. For minimum balance Reserve Management - managing the Philippines' maintenance. foreign exchange reserves, ensuring their c. Central Bank Reserves adequacy and optimal allocation to support the i. Comply with requirements of BSP. economy's external stability. Monetary Policy Implementation - influences the Importance of Bank Reserves level of reserves held by financial institutions, 1. Ensuring Liquidity aligning them with monetary policy objectives. 2. Financial Stability Currency Issuance - ensures the availability of 3. Monetary Policy Implementation cash reserves to meet the currency demand of the economy. Effects of Reserves to Banks and Economy International Cooperation - BSP collaborates with other central banks and international financial 1. Influence on Bank Lending institutions to strengthen reserve management 2. Economic Indicators practices, foster financial stability, and address 3. Current Trends and Issues global economic challenges. Computation of Legal Reserves of BSP Significance of Bank Reserves 1. Computation Process Bank Reserve - Bank reserves are the cash or cash- a. reserve position and penalty on reserve equivalent funds that a bank keeps on hand or deposits deficiency are calculated based on a with a central bank, like the Federal Reserve in the United seven-day week, beginning on Friday and States. ending on Thursday.  b. Includes weekends, public holidays, non- o An individual white box is provided for banking days, half-holidays, and days each character of the date of issuance where there is no clearing. o Peso sign is moved out of the boxed space 2. Measurement of Reserve Requirement for the Amount in figures a. Required reserves are determined based o Boxed white spaces are provided on the levels of deposit and substitute respectively for writing the date of liabilities from previous week. issuance, amount in figures, and 3. Guidelines During Public Sector Holidays signature/s of the Issuer/s or signature/s of a. Appendix 88 provides guidelines for the signatory/ies of the Issuer. computing a bank' s reserve position Role of BSP in the Clearing System during public sector holidays. 4. Implications and Compliance 1. Serves as central regulatory authority a. Compliance with these reserve 2. Responsible for establishing and operating computation guidelines is essential for infrastructure for the clearing system banks to meet their regulatory obligations 3. Acts as the central counterparty for Interbank and avoid penalties for reserve settlement deficiencies. 4. Establishes standardized procedures and format b. Understanding the computation process for check clearing. enables banks to effectively manage their reserve positions and ensure compliance Significance of BSP’s Clearing System with Bangko Sentral ng Pilipinas 1. Enhances Financial Inclusion regulations. 2. Supports Economic Activities Objective of Legal Reserves 3. Strengthens Confidence and Trust 4. Improves Risk Management 1. Ensure Liquidity and Financial Stability 2. Acts as a Monetary Tool History of European Central Bank 3. Maintain Price Stability Established and started operating on June1, 1998 4. Manage interest rates “To maintain pricestability” 5. Promote Financial Inclusion First exercised full powers on January 1, 1999 after 6. Mitigate Exchange Rate Risks the introduction of the Euro as their official 7. Align with Sustainable Development Goals (SDGs) currency. 8. Ensure Liquidity During Crisis Stages of Economic and Monetary Union Significance of Clearing System Stage 1: refers to the process of exchanging and reconciling payment instruments, such as checks, between financial Began on July 1, 1990 institutions to facilitate the transfer of funds from one All restrictions on the movement of capital account to another. between Member States were abolished Process Involves in Check Clearing Stage 2: Deposit Started on January 1, 1994 Collection Establishment of the EMI and the ECB Presentment December 1995, agreed to name the European Clearing Currency unit Settlement Posting Stage 3: Implementation of the New Check Design Standards Started on January 1, 1999 Irrevocable fixing of exchange rates Philippine Clearing House Corporation first Euro, the European Currency Unit memorandum on the New Check Design Standards, issued on February 11, 2019 a.k.a. What is Brexit? “CICS Operating Memo No. 19-030” Short for “Britain” and “Exit” New Format: Name given to the Uk’s departure from European o Date issuance should be in MM-DD-YYYY Union. sequence Boris Johnson o Date format guide is indicated below the o Former London Mayor dateline o Supported Brexit Why the United Kingdon is not a member of the European Group 3 – Functions of BSP (As Government’s Banker, Union? Agent, Financial Advisor) Voting Results: Chapter V – Functions as Banker and Financial Advisor o 48.1% Member states, Stay of the Government o 51.9% Member states, Leave Article I – Functions as Banker of the Government Reason o Section 110 – Designation of Bangko o UK could keep the money it currently Sentral as Banker of the Government sends to the EU ▪ The Bangko Sentral shall act as a o EU allows too many immigrant banker of the Government, its o EU strangling the UK in burdensome political subdivisions and regulation instrumentalities. o EU threatens British Sovereignty o SECTION 111 – Representation with the Global Impact International Monetary Fund. o Trade cost will increase ▪ BSP shall represent the o Higher tariffs on imports government in all dealings, o Freelly trading will stop at a glance negotiations, transactions with o Small markets won’t have a chance to IMF. grow o SECTION 112 – Representation with Other o Employment opportunity will decrease Financial Institutions o Ireland, Netherlands, and Belgium will ▪ BSP may be authorized to suffer a great loss as they trade with UK represent the government in mostly dealings, negotiations, and transactions with the Wim Duisenberg International Bank for reconstruction and development First President of the ECB internationally. o June 1, 1998 to October 31, 2003 ▪ President may designate other Former President of EMI and Dutch Central Bank financial advisors to jointly represent such dealings. Organizational Chart of ECB o SECTION 113 – Official Deposits 1. Executive Board – responsible for the ▪ BSP shall be the official implementation of monetary policy (defined by the depository of the Government. Governing Council) and the day-to-day running of o SECTION 114 – Fiscal Operations the bank. ▪ BSP shall open a general cash 2. Governing Board - main decision-making body of account for the Treasurer of the the Eurosystem. Philippines, in which all 3. General Council - dealing with transitional issues Government’s liquid funds as of euro adoption. deposited. 4. Supervisory Board - responsible for overseeing the o SECTION 115 – Other Banks as Agents of banking system within the eurozone. the Bangko Sentral o SECTION 116 – Remuneration for Services Members of the ECB ▪ BSP may charge service fees for The Executive Board the services that it renders to the a. President - Christine Lagarde Government b. Vice President - Luis de Guindos c. Members of the Executive Board Article II – The Marketing and Stabilization of i. Piero Cipollone, Frank Elderson Securities for the Account of the Government ii. Philip R. Lane, Isabel Schnabel The Issue and Placing of the Government Securities Functions and Roles of ECB o SECTION 117 – Issue of Government Monetary Policy Implementation Obligations Foreign Exchange Operations ▪ Issue of Government securities may be made through BSP. Official Reserves Management ▪ BSP does not guarantee Promotion of Payment System Efficiency placement of securities, shall not Banking Supervision subscribe to their issue. Issuer of Euro Banknotes Supporting Economic Growth & Employment  o SECTION 118 – Methods of Placing 4. Promoting Investor Confidence Government Securities 5. Supporting Economic Stability – by reducing ▪ BSP may place the securities market uncertainties & risks. through direct sale with financial Chapter VI – Privileges & Prohibitions institutions & general public. o SECTION 119 – Servicing and ▪ Article 1 – Privileges Redemption of the Public Debt o SECTION 125 – Tax Exemptions ▪ The servicing and redemption of ▪ BSP is exempt from all taxes on the public debt shall also be income in: effected through the Bangko Bank supervision Sentral. Aimed at achieving goal Bangko Sentral Support of the Government Securities of price stability, Market economic growth, and peso convertibility. o SECTION 120 – The Securities o SECTION 126 – Exemption from Stabilization Fund Customs Duties ▪ Administered by BSP on account ▪ BSP’s import and export of notes, of the Government coins, golds, metals, all o SECTION 121 – Resources of the resources for banknote Securities Stabilization Fund production and coin minting are ▪ Resources shall come from the excempt from customs. balance of the said fund. o SECTION 127 – Applicability of the Civil o SECTION 122 – Profits and Losses of the Service Law Fund ▪ All BSP related appointments ▪ The Fund shall retain net profits, must follow Civil Service Law and bear any net losses. regulations. Except for policy making, Article III – Functions as Financial Advisor of the confidential, or highly Government technical positions. o SECTION 123 – Financial Advice on ▪ All officers and employees cannot Official Credit Operations engage in partisan activities, or ▪ Government shall request, in elections, only to vote. writing, the opinion of the ▪ Article 2 – Prohibitions Monetary Board on the monetary o SECTION 128 – Prohibitions implications, before undertaking ▪ BSP cannot acquire shares, credit operations. accept as collateral & participate o SECTION 124 – Representation of the as owner/manager of an National Economic and Development enterprise Authority Except if required for ▪ The Deputy Governor assigned by international/regional BSP shall be an ex officio member membership, approved of the National Economic and by at least 5 Monetary Development Authority Board. Board Necessary to fulfill its What is the Advice of BSP Governor to the Government mandate without During Pandemic? conflicts of interest. 1. Pass Key Economic Reforms ▪ BSP cannot engage in 2. Update Support Structures development banking or 3. Remove Bank Secrecy for Government Officials financing. 4. Enhance Credit Access for MSMEs Current Events Purpose of Securities Stabilization Fund ▪ Addressing the impact of pandemic 1. Ensuring Quick Access to Cash – fund shall act as o Changes to liquidity and interest rate to safety net support businesses, households, and 2. Preventing Extreme Price changes – Keeps prices stabilize the economy of investment stable o BSP is committed to economic recovery 3. Maintaining Market Stability – Balances buying and by normalizing pandemic-era policies. selling activities ▪ Digital payments using QR: Paleng-QR Ph  o Implemented in Ilocos Sur ▪ Overseas fulfillment of the duties of the Bank’s o Cashless transactions in markets & officers, excluding Auditors and Counselors tricycle hubs Members of the Policy Board History of the Bank of Japan ▪ Governor – UEDA Kazuo ▪ Meiji Period (1868 to 1887) ▪ Deputy Governors o 1868: Meiji Period begins, exploration of o UCHIDA Shinichi Western (England and America) financial o HIMINO Ryozo systems ▪ Members of the Policy Board o 1873: National Bank Ordinance issued, o ADHACHI Seiji establishing national banks modeled on o NAKAMURA Toyoaki the American system. o NOGUCHI Asahi o June 1882: The Bank of Japan is o NAKAGAWA Junko established and BOJ Act of 1882 is o TAKATA Hajime promulgated o TAMURA Naoki o Oct. 10, 1882: Business operation begins. Group 4 – BSP Monetary Policy and Bank of England o 1897: Japan adopts the gold standard to stabilize the yen Monetary Policy - The Bangko Sentral ng Pilipinas (BSP) ▪ World War Era (1910s to 1942) promotes price stability in its monetary policy by o 1910s: World War I maintaining low and stable inflation conducive to balanced o 1920s: Shoowa Financial Crisis economic growth. o 1930s: World War II o Feb. 1942: Bank of Japan Act of 1942 is Goals of Monetary Policy promulgated ▪ Price Stability o May 1, 1942: The Bank was reorganized ▪ Foster Economic Growth ▪ Post War, Economic Construction & Growth (1949 ▪ Ensure Financial Stability to 1950s) ▪ Manage Exchange Rates o 1949: Implementation of the Dodge Plan o 1950s: Japanese Economic Miracle Feature and Nature of Monetary Policy ▪ Bubble Economy Era (1980s to 1990s) o 1980s: Bubble Economy era (rapid growth 1. Regulation of Money Supply and inflated asset prices) 2. Inflation Targeting o Early 1990s: Bursting of the bubble that 3. Economic Growth Support became the "Lost Decade." 4. Exchange Rate Management ▪ Post-Bubble Era (1997 to 1998) 5. Adaptive Response to Economic Conditions o June 1997: Bank of Japan Act of 1997 is a. Expansionary Policy promulgated b. Contractionary Policy o Apr. 10, 1998: Bank of Japan Act of 1997 6. Macroprudential Measures comes into effect Monetary Board Functions of the Bank of Japan ▪ A group of people that exercises the powers and 1. Monetary Policy functions of the BSP a. To maintain price stability ▪ Issue rules and regulations 2. Currency Issuance ▪ Directs the management, operations, and a. Issues Japanese yen administration of the BSP 3. Financial System Stability ▪ Establishing a human resource management a. Monitors and maintains stability of system financial system ▪ Adopts an annual budget and authorizes 4. Payment Settlement Systems expenditures 5. Market Operations ▪ Provides indemnification for its members and a. Controls money supply & interest rate other officials of the BSP 6. Financial Services for the Government Who are on the Monetary Board? 7. International Finance 8. Ensures Smooth Settlement of Funds 1. Governor a. Roles: Policy Board i. The chairman of the Monetary ▪ BOJ’s highest decision-making body Board ▪ Determines guidelines for currency and monetary ii. serves as the chief executive control officer of the BSP.  iii. responsible for the overall i. Participates in policy formulation management and operations and decision-making. iv. of the central bank. ii. Brings government perspective to v. Acts as the principal the MB's discussions and representative of the MB and BSP. decisions. b. Functions: c. Tenure: i. Prepares the agenda for Monetary i. Appointed for a term of six years. Board (MB) meetings. ii. Cannot be reappointed more than ii. Executes and administers the once. policies and measures approved d. Employment Terms: by the MB. i. Appointed by the President of the iii. Directs and supervises the BSP's Philippines. operations and internal e. Incumbent: administration. i. Ralph Recto iv. Appoints and fixes remuneration 3. 5 Members who shall come from private sector for personnel below the rank of a. Role: department head, following MB- i. Private sector representatives on approved plans. the Monetary Board. v. Issues opinions, decisions, or b. Functions: rulings on applying or enforcing i. Contribute specialized laws related to BSP-supervised knowledge and perspectives to institutions and quasi-banks. policy discussions. vi. Executes any other powers vested ii. Participate in decision-making on by the MB. key issues such as interest rates, vii. Represents the MB and BSP in banking regulations, and financial dealings with government offices, stability. agencies, instrumentalities, and iii. Provide oversight on the various entities, both domestic implementation of policies and and international. BSP operations. viii. Signs BSP contracts, notes, c. Tenure: securities, reports, balance i. Three Members: Serve an initial sheets, profit and loss term of six years. statements, correspondence, ii. Two Members: Serve an initial and other documents. term of three years. ix. Represents the BSP in legal iii. Cannot be reappointed more than proceedings and specialized legal once. studies. d. Employment Terms: x. Can delegate representation i. shall come from the private powers to other officers, sector maintaining responsibility. ii. all of whom shall serve full-time. c. Tenure e. Incumbent: i. Appointed for a term of six years. i. Benjamin E. Diokno ii. He can be reappointed for ii. V. Bruce J. Tolentino another term. iii. Anita Linda R. Aquino d. Employment Terms iv. Romeo L. Bernardo i. A full-time position that requires v. Rosalia de Leon undivided attention and Deputy Governor and BSP’s Operating Sectors commitment to the duties and responsibilities of the office. 1. Monetary and Economics Sector (MES) ii. The appointment is subject to a. Mainly responsible for confirmation by the Commission operations/activities related to monetary on Appointments. policy formulation, implementation, and assessment. 2. A member of the Cabinet 2. Financial Supervision Sector (FSS) a. Role: a. Mainly responsible for regulating banks i. A member of the Philippine and other BSP-supervised financial Cabinet designated by the institutions President 3. Payments and Currency Management Sector b. Functions: (PCMS)  a. Mainly responsible for maintaining the Bank of England’s Monetary Policy safety and integrity of the Philippine To ensure that the monetary policy decision is transmitted currency. to the financial market and the economy in general, the BSP b. Ensures well-functioning payments and uses its suite of monetary instruments to influence the cash ecosystem supporting economic underlying demand and supply conditions for central bank activity and long-run growth. money. 4. Regional Operations and Advocacy Sector a. Mainly responsible for managing regional Interest Rate Corridor (IRC) operations, consumer empowerment and advocacy, and communications. is a system for guiding short-term market rates towards the 5. Corporate Services Sector (CSS) BSP policy interest rate which is the overnight reverse a. Mainly responsible for effective repurchase rate (RRP). The primary aim of the adoption of management of BSP’s human, financial, the IRC is to improve the transmission of monetary policy. and physical resources IRC’s Instruments: b. Supports BSP’s core functions, including oversight of the operations of the New 1. Open Market Operations (OMO) – refers to the Clark City – Program Management Office buying and selling of securities in the open market to influence money supply & affect interest rates. Offices Under the Monetary Board and the Governor a. Reverse Repurchase / Repurchase 1. Office of the General Counsel and Legal Transactions: refers to the buying or Services selling of government securities in the a. Renders legal advisory services to the MB, open market by a central bank to influence Governor, Deputy Governors, and BSP the money supply and indirectly affect units on policies, functions, operations, interest rates. and regulations. b. Issuance of BSP Securities: refers to the b. Prepares/reviews: process by which the Bangko Sentral ng i. International and local Pilipinas (BSP) creates and distributes agreements involving the BSP monetary instruments as part of its ii. Draft legislation, circulars, rules, monetary policy operations and liquidity and regulations related to money, management efforts banking, and credit policies, c. Outright Purchase and Sales of Securities: including internal BSP policies. refer to transactions where securities are c. Investigates and prosecutes criminal bought or sold without any agreement for cases involving fraud, irregularities, and future repurchase or sale. anomalies by directors/trustees/officers d. Foreign Exchange Swaps: refers to of BSP-supervised financial institutions financial instruments that involve the (BSFIs) simultaneous exchange of two currencies d. Investigates cybercrimes/cyberattacks, at an agreed-upon exchange rate, with a including digital evidence collection, commitment to reverse the transaction at examination, and forensic analysis a future date. affecting the BSP, BSFIs, and the financial 2. Acceptance of Term Deposits: By accepting term services industry. deposits, the BSP effectively absorbs liquidity from 2. Consumer Complaints Resolution Office the banking system, which helps manage excess a. Provides mediation and adjudication funds and influence short-term interest rates. services to financial consumers a. Term Deposit Facility: It helps ensure the 3. Office of the Secretary, Monetary Board stability and efficiency of the financial a. Provides secretarial services, top-level markets and supports the effective technical/advisory assistance, and implementation of monetary policy operations support to the MB. 3. Standing Liquidity Facilities: The BSP offers 4. Internal Audit Office standing liquidity (lending and deposit) windows to a. Provides independent assurance and provide or absorb liquidity at the initiative of the advice to the MB and Senior Management counterparty. b. Promotes effective governance processes a. Overnight Deposit Facility: Banks can and long-term organizational soundness place their surplus liquidity with the BSP, c. Assists in achieving strategic and earning interest on their deposits. The operational objectives through systematic interest rate offered on the overnight and disciplined evaluations of deposits serves as the lower bound of the governance, risk management, and interest rate corridor (RRP rate= -50 bps). control processes  b. Overnight Lending Facility: Banks facing ▪ 1996: Real-Time Gross Settlement (RTGS) System temporary liquidity shortages can access Introduced funds from the BSP through this facility. ▪ October 1996: Launch of the Financial Stability The interest rate charged on the overnight Review (FSR) loans provided by the BSP serves as the ▪ 1997: Bank of England Agencies upper bound of the interest rate corridor. ▪ 2012: Prudential Regulation Authority (PRA) and (RRP rate = +50 bps) Financial Policy Committee (FPC) formed ▪ September 13, 2016: First Polymer Banknote Differentiate Monetary Tools Released ▪ RRP involves temporary borrowing and lending of government securities, while outright Functions and Roles sales/purchases are permanent transactions. ▪ Outright sales/purchases can be used for open 1. Regulation of other banks: For much of its history, market operations, while RRPs are specifically the Bank has performed a coordinating role designed for short-term liquidity management. amongst other banks and participants in the ▪ The TDF is a facility for banks to place excess funds financial markets. In 1997, bank oversight was for a specified term, while RRPs and outright shifted from the bank to the Financial Services sales/purchases do not have a specific term. Authority (FSA). ▪ RRPs and outright sales/purchases involve 2. Issuing Banknotes: Banknotes were first issued in government securities, whereas the TDF involves the United Kingdom as receipts from banks in deposits with the central bank. exchange for deposits of gold or silver. As a result, in its early days, the Bank's notes were frequently RRPs involve temporary borrowing and lending of handwritten and for the exact amount placed by government securities, outright sales/purchases are the customer. permanent transactions, and the TDF allows banks to place 3. Setting Monetary Policy: According to the Bank, excess funds for a specific term. monetary policy is "action that a country's central History of Bank of England: bank or government can take to influence how much money is in the economy and how much it ▪ July 27, 1694: Bank of England was founded costs to borrow" ▪ 1694: Sir John Houblon becomes the 1st Governor a. Aims of Monetary Policy: The Bank's of the Bank of England monetary policy attempts to keep inflation ▪ 1720: South Sea Bubble close to the goal rate of 2% per year, with ▪ 1725: 1st Denominated Banknotes issued past targets including preserving ▪ 1734: Move to Threadneedle Street convertibility, money quantity, and ▪ October 1788: Appointment of Sir John Soane exchange rate during and after WWII. ▪ 1797: The Restriction Period b. Quantitative Easing: After the financial ▪ 1797-1821: Forgeries During the Restriction Period crisis, the Bank discovered that lowering ▪ 1826: 1st Branch Opened in Gloucester interest rates to the lowest possible level ▪ 1834: Plymouth Branch Opened did not boost the economy enough to ▪ 1844: Bank Charter Act reach its inflation objective ▪ May 9-10, 1866: Overend Gurney Crisis c. Methods of Operation ▪ 1870: Chief Cashier Signs Banknotes d. Communication ▪ 1894: First Woman Employed by the Bank, Janet 4. Maintaining Stability in the Financial System: Hogart The Bank emphasizes the significance of financial ▪ 1908: Bank of England Sports Centre Opens stability and crisis management for a strong ▪ 1914-1918: World War I economy and has provided additional liquidity ▪ 1920: Montagu Norman becomes the Governor during crises such as 1772, 1825, 1914, and 1987. ▪ 1925: Threadneedle Street Rebuilt ▪ 1931: Gold Standard Suspended Governing Body ▪ 1939-1945: World War II A court of directors governs the works of a bank. There have ▪ 1940s: Wartime Banknote Forgeries been a total of 119 governors and 154 deputy governors ▪ 1946: Nationalization of the Bank since 1694 ▪ 1960: 1st Quarterly Bulletin Published ▪ 1960: HM Queen Elizabeth II on Banknotes ▪ 1964-1697: John Houblon ▪ 1968: First “Giants” Printed ▪ 1694-1695: Micheal Godfrey ▪ September 9, 1970: First Pictorial Note Issued ▪ 1695-1697: William Scawen ▪ September 16, 1992: Black Wednesday ▪ 1697-1699: Nataniel Tench ▪ February 1993: First Inflation Report Published ▪ 1699-1701: John Ward ▪ July 1994: 300th Anniversary of the Bank