Chronology of Central Banking in the Philippines

Early Ideas and Commonwealth Period (1933–1941)

 1933: Filipino economists and policymakers conceptualized a central bank to
promote price stability and economic growth.
o Studied the Hare-Hawes-Cutting Act (Philippine independence law) for
guidance.
 1935–1941: Discussions continued during the Commonwealth period.
o Monetary system managed by the Department of Finance and National
Treasury.
o Philippines used the US dollar as the standard currency, fully backed by
gold.
 Goal: Prepare a framework for a central bank to control money and credit.

Early Banking Supervision (1900–1929)

 1900 – Act No. 52: All banks placed under the Bureau of Treasury; the Insular
Treasurer supervised banks.
 February 1929: Bureau of Banking under the Department of Finance took over
bank supervision.

Attempts to Create a Central Bank (1939–1946)

 1939: Secretary of Finance Manuel Roxas drafted a central bank bill,
approved by the Philippine Legislature.
o US President Franklin D. Roosevelt disapproved due to opposition from
vested interests.
 1944: Another law passed during Japanese occupation, but implementation
was stopped by the return of American liberalization.
 1946: President Roxas instructed Finance Secretary Miguel Cuaderno, Sr. to
draft a central bank charter.
o Joint Philippine-American Finance Commission recommended:
 Monetary system reform
 Formation of a central bank
 Shift from dollar standard to a managed currency system

Central Bank Preparations (1947–1948)

  August 1947: Central Bank Council formed to review the Commission’s
recommendations and prepare legislation.
 February 1948: President Roxas submitted the Central Bank Bill to Congress.
 15 June 1948: Republic Act No. 265 (Central Bank Act) signed into law by
President Elpidio Quirino.

Inauguration of the Central Bank (1949)

 3 January 1949: Central Bank of the Philippines (CBP) formally opened.
o First Governor: Miguel Cuaderno, Sr.
o Objectives:
 Promote economic development
 Maintain internal and external monetary stability

Amendments and Expansions (1972–1986)

 November 1972 – PD No. 72: CBP charter amended to:
o Focus on domestic and international monetary stability
o Expand authority to supervise the entire financial system
 January 1981 – PD No. 1771: Strengthened the financial system, increased
CBP capitalization from P10 million → P10 billion.
 1986 – Executive Order No. 16: Changed Monetary Board membership to
improve coordination between monetary and fiscal policies.

Establishment of the Bangko Sentral ng Pilipinas (BSP) – 1993

 3 July 1993 – RA No. 7653 (New Central Bank Act):
o CBP replaced by the Bangko Sentral ng Pilipinas (BSP)
o Key improvements:
 Independent monetary authority
 Explicit primary objective: price stability
 Fiscal and administrative autonomy

Recent Amendments (2019)

 14 February 2019 – RA No. 11211:
 o Updated BSP charter to strengthen its role in safeguarding:
 Price stability
 Financial system stability

Structure of the Bangko Sentral ng Pilipinas (BSP)

The BSP is the central bank of the Philippines, responsible for maintaining price
stability, issuing currency, and supervising banks and financial institutions. It has a
clear organizational structure to make decisions efficiently.
1. Monetary Board (MB) – The Highest Policy-Making Body
 The Monetary Board is the top decision-making body of the BSP.
 It sets policies on monetary, banking, and credit matters.
 Composition: 7 members
o 1 Governor – also the Chairman
o 6 Board Members – appointed by the President of the Philippines
 Term: Governor – 6 years; Members – 6 years (staggered terms)
 Responsibilities:
o Decide interest rates and monetary policy
o Supervise banks and financial institutions
o Approve issuance of currency and regulations
 Example: MB decides whether to increase or decrease policy interest rates to
control inflation.

2. Governor – Chief Executive Officer

 The Governor is the head of BSP operations and also chairperson of the
Monetary Board.
 Responsibilities:
o Implements policies approved by the Monetary Board
o Oversees day-to-day operations of the BSP
o Represents BSP in local and international meetings
 Example: Governor announces new regulations on digital banking.

3. Deputy Governors
  Assist the Governor in managing key areas of the BSP.
 Typically responsible for:
1. Monetary Operations – implementing monetary policy
2. Financial Supervision – overseeing banks and financial institutions
3. Administrative Services – handling HR, IT, and logistics
 Example: A Deputy Governor in charge of supervision ensures banks follow
rules.

4. Departments and Offices

The BSP has several departments and offices under the Governor and Deputy
Governors. Major ones include:
1. Bank Supervision Department – monitors commercial and thrift banks
2. Financial Supervision Sector – oversees non-bank financial institutions
3. Monetary Operations Department – conducts policy on money supply and
interest rates
4. Cash Department – manages printing and distribution of currency
5. Economic Research and Statistics Department – provides data for decision-
making
6. Legal and Compliance Offices – ensures BSP rules are followed
 Example: Economic Research Department studies inflation trends to
recommend policy action.

5. Regional Offices
 BSP has regional branches across the Philippines to implement policies
locally.
 Example: BSP Cebu branch monitors local banks and currency circulation in
the Visayas.

Significant Policies Implemented by the BSP

The Bangko Sentral ng Pilipinas (BSP) was established in 1993 as an independent
central bank. Since then, it has implemented policies to maintain price stability,
strengthen the financial system, and promote economic growth.
1. Inflation Targeting Policy (2002–Present)
 Meaning: BSP sets a specific target range for inflation (rise in prices) to keep
the economy stable.
  Purpose: Control rising prices, ensure purchasing power, and guide monetary
decisions.
 How it Works: BSP adjusts policy interest rates to influence borrowing,
spending, and investment.
 Example: If inflation rises above the target, BSP may increase the key interest
rate, making loans more expensive, reducing spending, and slowing inflation.

2. Interest Rate Policy / Monetary Policy

 Policy Instruments: BSP uses key policy rates like the overnight reverse
repurchase (RRP) rate to influence liquidity in the market.
 Purpose: Manage money supply, credit, and inflation.
 Example: During economic slowdown, BSP may lower interest rates to
encourage borrowing and spending.

3. Financial Stability Policies

 Meaning: Policies to ensure banks and financial institutions remain strong and
sound.
 Actions Include:
o Supervising banks
o Conducting stress tests
o Enforcing regulations on capital, liquidity, and risk management
 Example: BSP required banks to maintain minimum capital requirements,
preventing bank failures.
4. Exchange Rate Policies
 Meaning: BSP manages the Philippine peso to prevent extreme fluctuations
and maintain a stable currency.
 How it Works: BSP may intervene in the foreign exchange market by buying
or selling dollars.
 Example: During sharp depreciation of the peso, BSP may sell USD reserves
to stabilize the currency.

5. Digital Payments and Financial Inclusion Policies

 Meaning: BSP encourages digital banking, mobile payments, and financial
services to reach more Filipinos.
 Purpose: Modernize financial system and improve access to banking services.
  Example: PhilPaSS, InstaPay, and PESONet systems allow real-time transfers
and electronic payments.

6. Anti-Money Laundering and Risk Management Policies

 Meaning: BSP ensures banks and financial institutions follow rules to prevent
illegal activities.
 Example: Banks must report suspicious transactions and comply with BSP
circulars on anti-money laundering.

7. Prudential Regulations for Banks and Financial Institutions

 Meaning: BSP sets rules on how banks operate to protect depositors and
ensure stability.
 Examples:
o Reserve requirement ratios – banks must keep a portion of deposits as
reserves
o Capital adequacy standards – banks must have enough capital to cover
risks

8. Liquidity Management and Open Market Operations

 Meaning: BSP uses bonds, treasury bills, and other instruments to control
money supply.
 Example: Selling government securities reduces money in circulation; buying
securities increases money supply.
9. Macroprudential Policies
 Meaning: Policies to prevent systemic risks that could affect the whole
financial system.
 Example: Limits on loan-to-value ratio for housing loans to prevent real estate
bubbles.