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HISTORY

Creating a Central Bank for the Philippines


A group of Filipinos had conceptualized a central bank for the Philippines as
early as 1933. It came up with the rudiments of a bill for the establishment of
a central bank for the country after a careful study of the economic
provisions of the Hare-Hawes Cutting bill, the Philippine independence bill
approved by the US Congress.
During the Commonwealth period (1935-1941), the discussion about a
Philippine central bank that would promote price stability and economic
growth continued. The countrys monetary system then was administered by
the Department of Finance and the National Treasury. The Philippines was on
the exchange standard using the US dollarwhich was backed by 100
percent gold reserveas the standard currency.
In 1939, as required by the Tydings-McDuffie Act, the Philippine legislature
passed a law establishing a central bank. As it was a monetary law, it
required the approval of the United States president. However, President
Franklin D. Roosevelt disapproved it due to strong opposition from vested
interests. A second law was passed in 1944 during the Japanese occupation,
but the arrival of the American liberalization forces aborted its
implementation.
Shortly after President Manuel Roxas assumed office in 1946, he instructed
then Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a
central bank. The establishment of a monetary authority became imperative
a year later as a result of the findings of the Joint Philippine-American
Finance Commission chaired by Mr. Cuaderno. The Commission, which
studied Philippine financial, monetary and fiscal problems in 1947,
recommended a shift from the dollar exchange standard to a managed
currency system. A central bank was necessary to implement the proposed
shift to the new system.
Immediately, the Central Bank Council, which was created by President
Manuel Roxas to prepare the charter of a proposed monetary authority,
produced a draft. It was submitted to Congress in February1948. By June of
the same year, the newly-proclaimed President Elpidio Quirino, who
succeeded President Roxas, affixed his signature on Republic Act No. 265, the
Central Bank Act of 1948. The establishment of the Central Bank of the
Philippines was a definite step toward national sovereignty. Over the years,
changes were introduced to make the charter more responsive to the needs
of the economy. On 29 November 1972, Presidential Decree No. 72 adopted
the recommendations of the Joint IMF-CB Banking Survey Commission which

made a study of the Philippine banking system. The Commission proposed a


program designed to ensure the systems soundness and healthy growth. Its
most important recommendations were related to the objectives of the
Central Bank, its policy-making structures, scope of its authority and
procedures for dealing with problem financial institutions.
Subsequent changes sought to enhance the capability of the Central Bank, in
the light of a developing economy, to enforce banking laws and regulations
and to respond to emerging central banking issues. Thus, in the 1973
Constitution, the National Assembly was mandated to establish an
independent central monetary authority. Later, PD 1801 designated the
Central Bank of the Philippines as the central monetary authority (CMA).
Years later, the 1987 Constitution adopted the provisions on the CMA from
the 1973 Constitution that were aimed essentially at establishing an
independent monetary authority through increased capitalization and greater
private sector representation in the Monetary Board.
The administration that followed the transition government of President
Corazon C. Aquino saw the turning of another chapter in Philippine central
banking. In accordance with a provision in the 1987 Constitution, President
Fidel V. Ramos signed into law Republic Act No. 7653, the New Central Bank
Act, on 14 June 1993. The law provides for the 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. This objective was only implied in the old Central Bank
charter. The law also gives the Bangko Sentral fiscal and administrative
autonomy which the old Central Bank did not have. On 3 July 1993, the New
Central Bank Act took effect.

REPUBLIC OF THE PHILIPPINES CONGRESS OF THE PHILIPPINES


REPUBLIC ACT NO. 7653
THE NEW CENTRAL BANK ACT
CHAPTER I
ESTABLISHMENT
PILIPINAS

AND

ORGANIZATION

OF

THE

BANGKO

SENTRAL

NG

ARTICLE I. CREATION, RESPONSIBILITIES AND CORPORATE POWERS OF THE


BANGKO SENTRAL
SECTION 1. Declaration of Policy. _ The State shall maintain a central
monetary authority that shall function and operate as an independent and
accountable body corporate in the discharge of its mandated responsibilities
concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary
authority established under this Act, while being a government owned
corporation, shall enjoy fiscal and administrative autonomy.
SEC. 2. Creation of the Bangko Sentral. _ There is hereby established an
independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko
Sentral. The capital of the Bangko Sentral shall be Fifty billion pesos
(P50,000,000,000), to be fully subscribed by the Government of the Republic,
hereafter referred to as the Government, Ten billion pesos (P10,000,000,000)
of which shall be fully paid for by the Government upon the effectivity of this
Act and the balance to be paid for within a period of two (2) years from the
effectivity of this Act in such manner and form as the Government, through
the Secretary of Finance and the Secretary of Budget and Management, may
thereafter determine.
SEC. 3. Responsibility and Primary Objective. _ The Bangko Sentral shall
provide policy directions in the areas of money, banking, and credit. It shall
have supervision over the operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent laws over the operations
of finance companies and non-bank financial institutions performing quasibanking functions, hereafter referred to as quasibanks, and 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.
SEC. 4. Place of Business. _ The Bangko Sentral shall have its principal place
of business in Metro Manila, but may maintain branches, agencies and
correspondents in such other places as the proper conduct of its business
may require.
SEC. 5. Corporate Powers. _ The Bangko Sentral is hereby authorized to
adopt, alter, and use a corporate seal which shall be judicially noticed; to
enter into contracts; to lease or own real and personal property, and to sell
or otherwise dispose of the same; to sue and be sued; and otherwise to do
and perform any and all things that may be necessary or proper to carry out

the purposes of this Act. The Bangko Sentral may acquire and hold such
assets and incur such liabilities in connection with its operations authorized
by the provisions of this Act, or as are essential to the proper conduct of such
operations. The Bangko Sentral may compromise, condone or release, in
whole or in part, any claim of or settled liability to the Bangko Sentral,
regardless of the amount involved, under such terms and conditions as may
be prescribed by the Monetary Board to protect the interests of the Bangko
Sentral.