BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION

major in FINANCIAL MANAGEMENT

MONETARY POLICY AND CENTRAL BANKING

CB-03: CENTRAL MONETARY AUTHORITY1

CBP as the Central Monetary Authority

Presidential Decree 1801 by Pres. Ferdinand Marcos provides:

“Section 1. The Central Bank of the Philippines is hereby constituted as the central monetary authority pursuant to
Section 14, Article XV of the Constitution. It shall provide policy direction in the areas of money, banking and
credit and shall have supervisory authority over the operations of banks and exercise such regulatory authority as
may be provided by law over the operations of non-bank financial intermediaries.”

Central Monetary Authority is the entity (typically the central bank) given the authority by the government or parliament to
control money supply by raising or reducing interest rates, oversees exchange rate policy and usually also supervises the
banking sector.

Bangko Sentral and the Philippines 2000

The New Central Bank Act of 1993 (RA 7653) renamed the central monetary authority as Bangko Sentral ng
Pilipinas. It has been capitalized by P50 billion. BSP shall have supervision over the operations of banks and exercise such
regulatory powers over the operations of finance companies and non-bank financial institutions performing quasi-banking
functions, and other institutions performing similar functions.

The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and
sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.

The Fuel of Economic Growth

Evidently, money becomes the fuel for economic growth. Government’s numerous economic and social projects
require funds for implementation. Lack of funds may create frustrations in the microbusinesses.

With proper sourcing and wise management of funds, the BSP can transform a stagnant economy into a dynamic
and progressive one. But this is easier said than done.

Credit facilities accessible by the masses will help boost the economy. With seed capital coming from the
government, the poor could put up microbusinesses. This will create more jobs and more income, resulting to acceleration
of the economic development.

Inflation is a formidable enemy of the low-income groups. It destroys their weak purchasing power, reducing their
ability even their most basic needs. This creates a chain of social problems which affect the economy.

The Monetary Board

The powers and functions of the Bangko Sentral shall be exercised by the Bangko Sentral Monetary Board (MB).

MB is composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:

(a) the Governor of the Bangko Sentral , who shall be the Chairman of the Monetary Board. Whenever the
Governor is unable to attend a meeting of the Board, he shall designate a Deputy Governor to act as his alternate:
Provided, That in such event, the Monetary Board shall designate one of its members as acting Chairman

(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the designated
Cabinet Member is unable to attend a meeting of the Board, he shall designate an Undersecretary in his
Department to attend as his alternate

(c) five (5) members who shall come from the private sector , all of whom shall serve full-time. However, three
(3) shall have a term of six (6) years, and the other two (2), three (3) years

No member of the Monetary Board may be reappointed more than once.

The members of the Monetary Board must be

1
Central Banking by Feliciano R. Fajardo and Manuel M. Manansala
RA 7653 as amended by RA11211
CENTRAL MONETARY AUTHORITY page 2

 natural-born citizens of the Philippines,

 at least thirty-five (35) years of age, with the exception of the Governor who should at least be forty (40) years of
age,
 of good moral character,
 of unquestionable integrity,
 of known probity and patriotism, and
 with recognized competence in social and economic disciplines.

A member of the Monetary Board is disqualified from being a director, officer, employee, consultant, lawyer, agent
or stockholder of any bank, quasi-bank or any other institution which is subject to supervision or examination by the Bangko
Sentral, in which case such member shall resign from, and divest himself of any and all interests in such institution before
assumption of office as member of the Monetary Board.

The members of the Monetary Board coming from the private sector shall not hold any other public office or public
employment during their tenure.

No person shall be a member of the Monetary Board if he has been connected directly with any multilateral banking
or financial institution or has a substantial interest in any private bank in the Philippines, within one (1) year prior to his
appointment; likewise, no member of the Monetary Board shall be employed in any such institution within two (2) years
after the expiration of his term except when he serves as an official representative of the Philippine Government to such
institution.

The current members of the Monetary Board are:

1. Benjamin Diokno, BSP Governor and Chairman of the Monetary Board

a. Francisco G. Dakila, Jr., Deputy Governor of the BSP
b. Ma. Almasara Tuaño-Amador, Deputy Governor of the BSP
c. Chuchi Fonacier, Deputy Governor of the BSP
2. Carlos Dominguez III, Secretary of the Department of Finance
3. Antonio S. Abacan, Jr.
4. Juan D. De Zuñiga, Jr.
5. V. Bruce J. Tolentino
6. Felipe M. Medalla
7. Peter B. Favila

Previous Board Composition

Original Central Bank Act of 1948 1972 Financial Reforms instituted by IMF-CBP
1. Secretary of Finance as Chairman 1. Central Bank Governor as Chairman
2. Central Bank Governor 2. Secretary of Finance
3. President of Philippine National Bank 3. NEDA Director General
4. Chairman of Development Bank of the 4. Chairman of Board of Investment
Philippines 5. Budget and Management Secretary
5. three (3) from the private sectors 6. two (2) from the private sector

Powers of the Monetary Board

In the exercise of its authority, the MB shall perform the following:

1. Issue rules and regulations it considers necessary for the effective discharge of the responsibilities and exercise of
the powers vested upon the Monetary Board and the Bangko Sentral;
2. Direct the management, operations, and administration of the Bangko Sentral, reorganize its personnel, and issue
such rules and regulations as it may deem necessary or convenient for this purpose. The legal units of the Bangko
Sentral shall be under the exclusive supervision and control of the Monetary Board;
3. Establish a human resource management system which shall govern the selection, hiring, appointment, transfer,
promotion, or dismissal of all personnel. Such system shall aim to establish professionalism and excellence at all
levels of the Bangko Sentral in accordance with sound principles of management.
4. Adopt an annual budget for and authorize such expenditures by the Bangko Sentral in the interest of the effective
administration and operations of the Bangko Sentral in accordance with applicable laws and regulations; and
5. Indemnify its members and other officials of the Bangko Sentral, including personnel of the departments
performing supervision and examination functions against all costs and expenses reasonably incurred by such
persons in connection with any civil or criminal action, suit or proceedings to which he may be, or is, made a party
by reason of the performance of his functions or duties, unless he is finally adjudged in such action or proceeding
to be liable for negligence or misconduct.
CENTRAL MONETARY AUTHORITY page 3

Powers and Duties of the Governor

Pursuant to Republic Act No. 7653 (The New Central Bank Act), the Governor shall be the chief executive officer of the
Bangko Sentral. His powers and duties shall be to:

1. Prepare the agenda for the meetings of the Monetary Board and to submit for the consideration of the Board the
policies and measures that he believes to be necessary to carry out the purposes and provisions of said Act;
2. Execute and administer the policies and measures approved by the Monetary Board;
3. Direct and supervise the operations and internal administration of the Bangko Sentral. The Governor may delegate
certain of his administrative responsibilities to other officers or may assign specific tasks or responsibilities to any
full-time member of the Monetary Board without additional remuneration or allowance whenever he may deem fit
or subject to such rules and regulations as the Monetary Board may prescribe;
4. Appoint and fix the remunerations and other emoluments of personnel below the rank of a department head in
accordance with the position and compensation plans approved by the Monetary Board, as well as to impose
disciplinary measures upon personnel of the Bangko Sentral, subject to the provisions of Section 15(c) of said Act:
Provided, That removal of personnel shall be with the approval of the Monetary Board;
5. Render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by the
Monetary Board, on matters regarding application or enforcement of laws pertaining to institutions supervised by
the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations, policies or instructions issued by the
Monetary Board, and the implementation thereof; and
6. Exercise such other powers as may be vested in him by the Monetary Board.

Reports and Publications

The Bangko Sentral shall publish a general balance sheet showing the volume and composition of its assets and liabilities as
of the last working day of the month within sixty (60) days after the end of each month except for the month of December,
which shall be submitted within ninety (90) days after the end hereof.

The Monetary Board shall publish and submit the following reports to the President and to the Congress:
(a) not later than ninety (90) days after the end of each quarter, an analysis of economic and financial developments,
including the condition of net international reserves and monetary aggregates;
(b) within ninety (90) days after the end of the year, the preceding year's budget and profit and loss statement of the
Bangko Sentral showing in reasonable detail the result of its operations;
(c) one hundred twenty (120) days after the end of each semester, a review of the state of the financial system; and
(d) as soon as practicable, abnormal movements in monetary aggregates and the general price level, and, not later
than seventy-two (72) hours after they are taken, remedial measures in response to such abnormal movements.

Domestic Monetary Stability

Monetary stability simply means price stability. Whenever there is an expansion or contraction of money supply, there is
fluctuation in the price level.

The New Central Bank Act states whenever abnormal movements in the monetary aggregates, in credit, or in prices
endanger the stability of the Philippine economy or important sectors thereof, the Monetary Board shall:

(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the
Bangko Sentral; and
(b) submit to the President of the Philippines and the Congress, and make public, a detailed report which shall include,
as a minimum, a description and analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or in prices have been reflected in
changes in the level of domestic output, employment, wages and economic activity in general, and the nature
and significance of any such changes; and
(3) the measures which the Monetary Board has taken and the other monetary, fiscal or administrative measures
which it recommends to be adopted.

International Monetary Stability

International monetary stability simply means stability of the foreign exchange rates of the Peso against foreign currencies.
If the Bangko Sentral has no sufficient international reserves, it imposes control on demand, such as import control, foreign
exchange control, and other similar measures.

Section 64. International Monetary Stabilization. - The Bangko Sentral shall exercise its
powers under this Act to preserve the international value of the peso and to maintain its convertibility
into other freely convertible currencies primarily for, although not necessarily limited to, current
payments for foreign trade and invisibles.

The international reserves of the Bangko Sentral may include but shall not be limited to the following assets: (a) gold; and
(b) assets in foreign currencies in the form of – documents and instruments customarily employed for the international
CENTRAL MONETARY AUTHORITY page 4

transfer of funds; demand and time deposits in central banks, treasuries and commercial banks abroad; foreign government
securities; and foreign notes and coins.

CB Reorganization

The organizational structure of the BSP has been streamlined to make it efficient and economical in its operations.
Employees who were adversely affected by such massive reorganization were given retirement and separation benefits.

The BSP Seal

The new BSP logo is a perfect round shape in blue that features three gold stars and a stylized Philippine eagle rendered in
white strokes. Principal Elements:

1. The Philippine Eagle is a symbol of strength, clear vision and freedom, the qualities we aspire for as a central
bank.
2. The three stars represent the three pillars of central banking: price stability, stable banking system, and a safe and
reliable payments system.

Colors

1. The blue background signifies stability.

2. The stars are rendered in gold to symbolize wisdom, wealth, idealism, and high quality.
3. The white color of the eagle and the text for BSP represents purity, neutrality, and mental clarity.

Font or Type Face

Non-serif, bold for “BANGKO SENTRAL NG PILIPINAS” to suggest solidity, strength, and stability.

Shape

Round shape to symbolize the continuing and unending quest to become an excellent monetary authority
committed to improve the quality of life of Filipinos. This round shape is also evocative of our coins, the basic units
of our currency.

– END –
CENTRAL MONETARY AUTHORITY page 5

4 CBP/BSP ● The Bangko Sentral ng Pilipinas (BSP) is the independent central monetary authority of the Republic of the
Philippines. Established under the New Central Bank Act of 1993, the BSP is primarily mandated by law to ensure the
maintenance of price stability conducive to a balanced and sustainable growth of the economy.

5 Presidential Decree No. 1801 ESTABLISHING THE CENTRAL BANK OF THE PHILIPPINES AS THE CENTRAL MONETARY
AUTHORITY

6 PRESIDENTIAL DECREE NO. 1801 WHEREAS, the Constitution provides that the National Assembly shall establish a
central monetary authority which shall provide policy direction in the areas of money, banking and credit;.

7 PRESIDENTIAL DECREE NO. 1801 WHEREAS, until the National Assembly shall otherwise provide, the Central Bank of the
Philippines, operating under existing laws, shall function as the central monetary authority;

8 PRESIDENTIAL DECCREE NO. 1801 NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue
of the powers vested in me by the Constitution, do hereby order and decree:

9 PRESIDENTIAL DECREE NO. 1801 Section 1. The Central Bank of the Philippines is hereby constituted as the central
monetary authority pursuant to Section 14, Article XV of the Constitution. It shall provide policy direction in the areas of
money, banking and credit and shall have supervisory authority over the operations of banks and exercise such regulatory
authority as may be provided by law over the operations of non-bank financial intermediaries.

10 PRESIDENTIAL DECREE NO. 1801 Sec. 2. This Decree shall take effect immediately. Done in the City of Manila this 16th
day of January, in the year of Our Lord, nineteen hundred and eighty-one.

11 Primary Objective and Responsibility ● The BSP is primarily mandated by law to ensure the maintenance of price stability
conducive to a balanced and sustainable growth of the economy. Thus, price stability is considered a necessary
complement, rather than an alternative, to economic growth.

12 Central Bank of Philippines Mission and Vision As a MONETARY AUTHORITY the BSP aims to achieve parity with
international standards and act as a catalyst to make the Philippine economy a globally competitive one. The central bank
also tries to make sure that the financial system of the country is such that Filipinos enjoy a high standard of life.

13 Central Bank of Philippines Mission and Vision The BSP's major commitment is towards ensuring and promoting the
consistency of prices and providing a positive leadership that is necessary to make sure the financial system stays strong.
The bank also aims to assist the economy in experiencing a sustainable and balanced level of growth it also implements the
necessary monetary policies and supervises the financial organizations in ways that are required to achieve the goal.

14 Central Bank of Philippines Governance The Monetary Board is the leading authority at the BSP and performs important
functions such as management of the financial system and formulation and implementation of monetary policies.

15 Central Bank of Philippines Governance ● The Governor heads the Monetary Board and also acts as the BSP CEO. He or
she is responsible for supervising and directing the internal administration and functions of the bank. ● The Monetary Sector
implements and makes the banks monetary policies. It accepts servicing withdrawals, deposits, and provides credit through
the rediscounting facility.

16 PRESIDENTIAL DECREE NO.1801 Establishing the Central Bank of the Philippines as the Central Monetary Authority
1993- came up with the rudiments of a bill for the establishment of a central bank for the country 1935-1941
(commonwealth period)- discussion about a Philippine central bank 1939- as required by the Tydings-Mcduffie act,
Philippine legislature passed a law establishing a central bank. However, US President F.D. Roosevelt disapproved it due to
strong opposition from vested interests.

17 PRESIDENTIAL DECREE NO.1801 Establishing the Central Bank of the Philippines as the Central Monetary Authority
1944( during Japanese occupation)- A second law was passed, but the arrival of the American liberalization forces aborted
its implementation. 1946- Pres. M.Roxas instructed the Finace Secretary to draw up a charter for a central bank. 1947-The
commission w/c studied Philippine Financial, monetary and fiscal problems recommended as a shift from the dollar
exchange standard to a managed currency system.

18 PRESIDENTIAL DECREE NO.1801 Establishing the Central Bank of the Philippines as the Central Monetary Authority
February 1948- The Central Bank Council prepare the charter of a proposed monetary authority, produced a draft, it was
submitted to Congress. June 1948- Pres. E.Quirino affixed his signature on Republic Act No. 265, The central Bank Act of
1948. November 29, 1972- Presidentia; Decree No. 72 adopted the recommendations of the Joint IMF-CB Banking Survey
Commission
CENTRAL MONETARY AUTHORITY page 6

19 PRESIDENTIAL DECREE NO.1801 Establishing the Central Bank of the Philippines as the Central Monetary Authority 1973
Constitution- The National Assembly was mandated to establish an independent central monetary authority. Later 1801
designated the Central Bank of the Philippines as the central monetary authority (CMA)/ 1987 Constitution adopted the
provisions on CMA from 1973 Constitution. June 14, 1993- In accordance with a provision in the 1987 Constitution, Pres.
F.V.Ramos signed into law Republic Act No. 7653, the New Central Bank Act.

20 PRESIDENTIAL DECREE NO.1801 Establishing the Central Bank of the Philippines as the Central Monetary Authority *The
law provides for establishment of an independent monetary authority to be known as the Bangko Sentral ng Pilipinas, with
the maintenance of price stability explicitly stated as its primary objective. The objective was only implied in the old Central
Bank charter. The law gives the Bangko Sentral fiscal and administrative autonomy which the old Central Bank did not have.
JULY 3, 1993 – THE New Central Bank Act took effect JULY 3, 1993 – THE New Central Bank Act took effect

21 Under the New Central Bank Act, the BSP performs the following functions 1. Liquidity Management- by formulating and
implementing monetary policy aimed at influencing money supply, consistent with its primary objective to maintain price
stability. 2. Currency Issue- exclusive power to issue the national currency. 3. Lender for last resort- extending discounts,
loans and advances to banking institutions for liquidity purposes

22 Under the New Central Bank Act, the BSP performs the following functions 4. Financial Supervision- supervising banks
and exercising regulatory powers over non- ban institutions performing quasi-banking functions. 5. Management of Foreign
currency reserves- by maintaining 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.

23 Under the New Central Bank Act, the BSP performs the following functions 6. Determination of exchange rate policy- by
determining the exchange rate policy of the Philippines 7. Being the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and GOCCs.
CENTRAL MONETARY AUTHORITY page 7

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