FINANCIAL
MARKET
BANGKO SENTRAL NG
PILIPINAS
Topic guide:
Roles of BSP
Governance of the bank
The monetary board
Monetary Policy
Monetary Policy and Framework
Bangko Sentral
Roles of ng Pilipinas
The BSP has many roles (BSP, 2001). To fulfill its duties and
responsibilities, the BSP plays several roles:
1. The supplier of money by:
a. issuing the Philippine currency, the peso (paper notes and coins), used
in economic transactions, is fully guaranteed by the Philippine
government.
b. Printing paper notes and minting coins to replace old ones or add to
those currently being used
Bangko Sentral
Roles of ng Pilipinas
2. A money manager by ensuring that there is enough money to meet the
financial needs of the economy. Having too much money in circulation will
result in inflation (higher prices). The BSP, as a money manager, shall:
a. require banks to keep a certain portion of their deposits as reserves
b. buy and sell government securities and
c. extend credit to banks
Bangko Sentral
Roles of ng Pilipinas
3. The supervisor of all banks by:
a. regularly monitoring and examining the operations of banks, as well as
their compliance with banking rules and regulations
b. Assigning a conservator to temporarily manage the operations of a
financially troubled bank until it gets back to its feet but
c. If the evaluation shows that the bank cannot be restored to a healthy
condition, the BSP stops the bank's operations to prevent it from
incurring losses and affecting other banks and the public.
Bangko Sentral
Roles of ng Pilipinas
4. The bank of banks since the BSP does not deal with the public it can
only accept deposits from and grant loans to banks (for commercial,
production, and similar purposes such as exports and agricultural
activities) and as a lender of last resort, provides advances to banks in a
time of emergencies or if financial problems directly threaten monetary
and financial stability
5. The main bank of the government, the BSP acts as the official
depository of the government (some of the tax collections, proceeds of
the sale of government securities and foreign loans) and withdrawals to
repay foreign debts or pay expenses. Coordinating the timing of
government deposits and withdrawals would contribute to the BSP's
overall management of the money supply.
Governance of the bank
The Monetary Board exercises the powers and functions of the
BSP, such as the conduct of monetary policy and supervision of
the financial system. Its chairman is the BSP Governor, with five
full-time members from the private sector and one member
from the Cabinet.
The Governar is the chief executive officer of the BSP and is
required to direct and supervise the operations and internal
administration of the BSP. A deputy governor heads each of the
BSP's operating sectors as follows:
Governance of the bank
1. The Monetary Stability Sector takes charge of the formulation and
implementation of the BSP's monetary policy, including serving the
banking needs of all banks through accepting deposits, servicing
withdrawals, and extending credit through the rediscounting facility.
2. The Supervision and Examination Sector enforces and monitors
compliance with banking laws to promote a sound and healthy banking
system.
3. Resource Management Sector serves the human, financial and
physical resource needs of the BSP
The Monetary Board
The powers and functions of BSP are exercised by
its Monetary Board, which has seven members
appointed by the President of The Philippines.
Under the New Central Bank Act, one of the
government sector members of the Monetary
Board must also be a member of the Cabinet
designated by the President.
The Monetary Board
The major functions of the Monetary Board include the power to:
1. Issue rules and regulations it considers necessary for the effective
discharge of the responsibilities and exercise of the powers vested in it;
2. Direct the management, operations, and administration of Bangko
Sentral, organize its personnel, and issue such rules and regulations as it
may deem necessary or desirable for this purpose;
3. Establish a human resource management system that governs the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel;
The Monetary Board
4. Adopt an annual budget for and authorize such expenditures by Bangko
Sentral as are in the interest of the effective administration and operations of
Bangko Sentral by applicable laws and regulations; and
5. Indemnify its members and other officials of 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 proceeding, to which any
of them may be made a party because of the performance of his functions or
duties, unless such members or other officials are found to be liable for
negligence or misconduct.
Monetary Policy
Monetary Policy can be defined as the management of the
expansion and construction of the volume of money in circulation
for the explicit purpose of attaining a specific objective, such as full
employment.
Measures or actions taken by the Bangko Sentral ng Pilipinas (BSP)
to regulate the supply of money in the economy constitute what is
called monetary policy. Monetary policy actions of the BSP are
aimed at influencing the timing, cost, and availability of money and
credit, as well as other financial factors, to stabilize the price level.
Monetary Policy Framework
On 24 January 2000, the BSP's policy-
making body, the Monetary Board,
approved in principle the shift to
inflation targeting as a framework for
conducting monetary policy.
The BSP has been observing the
following operational guidelines since it
implemented inflation targeting in
2002.
Monetary Policy
Two Strongest Limitations of Monetary Policy
1. It cannot peg interest rates for more than very limited periods.
2. It cannot peg the rate of unemployment for more than very limited
periods.
Advantages of Monetary Policy
1. It can be changed quickly
2. It is effective in expanding or contracting the economy
3. It is a tool preferred by most economists in short-run stabilization.
Thank You!
