The Bangko Sentral ng Pilipinas

Republic Act No. 7653

The central bank of the country.
Established: 3 July 1993
Central Bank of Philippines: 3 January 1949

ESTABLISHMENT AND ORGANIZATION

OF THE BANGKO SENTRAL NG PILIPINAS

Declared Policy of the State

Section 1. 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.
Creation of the Bangko Sentral ng Pilipinas
Section 2. There is hereby established an independent central monetary authority,
which shall be a body corporate known as the Bangko Sentral ng Pilipinas. Art. XII,
Section 20 Constitution. The Congress shall establish an independent central
monetary authority, the members of whose governing board must be natural-born
Filipino citizens, of known probity, integrity, and patriotism, the majority of whom
shall come from the private sector.
Responsibility and Primary Objective
Section 3. To provide policy directions in the areas of money, banking, and credit. Have
supervision over the operations of banks and exercise such regulatory powers as
provided by law. To maintain price stability conducive to a balanced and sustainable
growth of the economy. Promote and maintain monetary stability and the
convertibility of the peso.
Place of Business
Section 4. 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.
Corporate Powers
Section 4. 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 MONETARY BOARD
COMPOSITION OF THE MONETARY BOARD
The powers and functions of the Bangko Sentral shall be exercised by the Bangko
Sentral Monetary Board, hereafter referred to as the Monetary Board, composed
of seven (7) members appointed by the President of the Philippines for a term of
six (6) years.
The seven (7) members are:
The Governor, as Chairman;
A member of the Cabinet designated by the President of the Philippines; and
5 members who shall come from the private sector, all of whom shall serve full-
time.
No member shall be reappointed more than once.

VACANCIES
Any vacancy in the Monetary Board created by the death, resignation, or removal
of any member shall be filled by the appointment of a new member to complete
the unexpired period of the term of the member concerned.
QUALIFICATIONS
The members of the Monetary Board must be:
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.
DISQUALIFICATIONS
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.
REMOVAL
The President may remove any member of the Monetary Board for any of the
following reasons: subsequent disqualification, incapacity to discharge duties,
guilty of fraudulent or illegal acts; or the member no longer possesses the
qualifications specified in Section 8
MEETINGS
The Monetary Board shall meet at least once a week. The Board may be called to
a meeting by the Governor of the Bangko Sentral or by two (2) other members of
the Board. The presence of four (4) members shall constitute a quorum: Provided,
That in all cases the Governor or his duly designated alternate shall be among the
four (4). Unless otherwise provided in this Act, all decisions of the Monetary Board
shall require the concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the
proceedings and deliberations of the Monetary Board, including the tapes and
transcripts of the stenographic notes, either in their original form or in microfilm.
ATTENDANCE OF THE DEPUTY GOVERNORS
The Deputy Governors may attend the meetings of the Monetary Board with the
right to be heard.
SALARY
The salary of the Governor and the members of the Monetary Board from the
private sector shall be fixed by the President of the Philippines at a sum
commensurate to the importance and responsibility attached to the position.
WITHDRAWAL OF PERSONS HAVING A PERSONAL INTEREST
Any member of the Monetary Board with personal or pecuniary interest in any
matter in the agenda of the Monetary Board shall disclose his interest to the Board
and shall retire from the meeting when the matter is taken up. The decision taken
on the matter shall be made public.
EXERCISE OF AUTHORITY
In the exercise of its authority, the Monetary Board shall: (a) issue rules and
regulations it considers necessary (b) 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.
(c) establish a human resource management system. Such system shall aim to
establish professionalism and excellence at all levels of the Bangko Sentral in
accordance with sound principles of management.
RESPONSIBILITY
Members of the Monetary Board, officials, examiners, and employees of the
Bangko Sentral who willfully violate this Act shall be held liable for any loss or
injury suffered by the Bangko Sentral or other banking institutions as a result of
such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise
extraordinary diligence.
 THE GOVERNOR AND DEPUTY GOVERNORS

OF THE BANGKO SENTRAL According to the Republic Act No. 7653 (The New Central
Bank Act), the Governor is the chief executive officer of the Bangko Sentral ng
Pilipinas. His powers and duties include:

1. Preparing agenda for the meetings of the Monetary Board and to submit for
the consideration of the Board the policies and measures that necessary to
carry out the purposes and provisions of the Central Bank Act;
2. Executing and administering the policies and measures approved by the
Monetary Board;
3. Directing and supervising the operations and internal administration of the
Bangko Sentral.;
4. Appointing and fixing the remunerations and other emoluments of personnel
below the rank of a department head in accordance with the position and
compensation plans, as well as to impose disciplinary measures upon
personnel of the Bangko Sentral, provided that the removal of personnel shall
be with the approval of the Monetary Board;
5. Rendering opinions, decisions, or rulings, which shall be final and executory
until reversed or modified by the Monetary Board; and
6. Exercise such other powers as may be vested in him by the Monetary Board.

The Governor of the Bangko Sentral ng Pilipinas is also the principal representative
of the Monetary Board and the BSP and, in accordance with the instructions of the
Monetary Board, is empowered to:

1. Represent the Monetary Board and the Bangko Sentral in all dealings with
other offices, agencies and instrumentalities of the Government, and all other
persons or entities, public or private, whether domestic, foreign or
international;
2. Sign contracts entered into by the Bangko Sentral, notes and securities issued
by the Bangko Sentral, all reports, balance sheets, profit and loss statements,
correspondence, and other documents of the Bangko Sentral;
3. Represent the Bangko Sentral, either personally or through counsel,
authorized by the Monetary Board; and
4. Delegate his power to represent the Bangko Sentral, to other officers upon his
own responsibility. During the negotiations, he may instead be represented by
a permanent negotiator.

The current governor of the BSP is Amando M. Tetangco, Jr. (4 July 2005-Present).

The Deputy Governor, appointed by the Governor of the BSP, performs his duties be
assigned to them by the Governor and the Board. In the absence of the Governor, a
Deputy Governor designated by the Governor shall act as chief executive of the BSP
and shall exercise the powers and perform the duties of the Governor. Whenever the
Governor is unable to attend meetings of government boards or councils in which he
is an ex officio member pursuant to provisions of special laws, a Deputy Governor as
may be designated by the Governor shall be vested with authority to participate and
exercise the right to vote in such meetings.
The current Deputy Governors of the Bangko Sentral ng Pilipinas are: Diwa C.
Guinigundo (Monetary Stability Sector), Maria Almasara Cyd N. Tuao-Amador
(Resource Management Sector) and Nestor A. Espenilla, Jr. (Supervision and
Examination Sector).

LIQUIDITY MANAGEMENT

In the Philippines, the BSP formulates and implements monetary policy aimed at
influencing money supply consistent with its primary objective of maintaining price
stability.

The BSP manages liquidity through the various monetary policy instruments: open
market operations, reserve requirements, policy rates, rediscounting facilities. The
Philippines possess one of the highest reserve requirements in the Asia-Pacific region.
The BSP sanctions banks to maintain 19% as total reserve requirements wherein 8%
comprises the statutory reserve requirements, while the remaining 11% comprises the
liquidity reserve requirements that are imposed on financial institutions.

With the onset of the current global financial crisis, it is the BSPs commitment to
ensure that liquidity conditions are supportive of the spending and investment needs
of firms and households, while keeping a watchful eye on price stability.

The recent lowering of the risks to inflation allowed the BSP to cut its policy rates by
a total of 200 basis points since December 2008. The BSPs decision to ease the
monetary policy stance was based on the Monetary Boards assessment that inflation
would stay within target over the course of the policy horizon.

This 200 basis-point cumulative reduction in the policy rate will help stimulate
economic growth or help moderate the slowdown by bringing down the cost of
borrowing and reduce the financial burdens on firms and households. This will help us
avoid or at least mitigate the negative feedback loop from weakening economic
conditions to the functioning of the financial sector. Lower policy rates would also
have the effect of shoring up business and consumer confidence.

The latest inflation forecasts continue to show subdued price pressures, with headline
inflation expected to settle at around the middle of the target range for 2009 and at
the lower bound of the target range for 2010. On balance, downside pressures on
prices predominate due mainly to expectations of a marked deceleration in global
economic activity, which is expected to continue to dampen imported inflation and
inflation expectations, and weaker domestic demand conditions.

In addition to the reduction in its policy rates, the BSP also moved to ensure that there
is sufficient liquidity in the system. The BSP:
 i. Enhanced the existing peso repurchase agreement (repo) facilities
through relaxed valuation and a broader list of acceptable
collaterals;

ii. Established a US dollar repo facility to augment dollar liquidity in the

foreign exchange market and ensure the ready availability of credit for
imports and other legitimate funding requirements;

iii. Reduced the regular reserve requirement by two percentage points on

14 November 2008;

iv. Liberalised rediscounting guidelines which include increasing the

rediscounting budget to P40 billion in 14 November 2008 and to P60
billion on 02 March 2009, aligning rediscounting rate with the RRP rate,
easing the NPL ratio requirement and increasing loan value of all
eligible papers; and

v. Launched the Credit Surety Fund (CSF) Programme which provides

guarantee to small cooperatives to ensure continued access to
financing of small businesses.

Enough measures are already in place to encourage banks to clean up their inventory
of non-performing assets. These measures essentially allowed banks to spread out the
losses that may arise from the sale or transfer of non-performing assets (NPAs) at deep
discounts.

i. Banks were allowed to defer or spread out the booking of their losses
over a period of 10 years (Memorandum to All Banks and Non-Bank
Financial Institutions with Quasi-Banking Functions dated 16 February
2004).

ii. Moreover, the BSP allowed banks to undertake joint venture

agreements (JVA) with real estate developers to convert their idle and
foreclosed properties (Real and other properties acquired or ROPA)
into income-generating assets (Circular No. 518 dated 09 March 2006).
As of 26 June 2009, a total of P12.2 billion worth of bad assets were
entered into JVAs by banks with various developers. A total of P0.1
billion worth of JVA applications are still in the pipeline.

iii. As a policy response to address NPL loans, the BSP required banks to
set up buffers from losses arising from possible loan defaults through
the implementation of the following loan-loss provisioning rules for
banks (Circular No. 143 dated 01 October 1997, as amended):
5% - unclassified restructured loans
1% - unclassified loans other than restructured loans
In periods of national and/or local emergency, or of imminent financial panic, which
directly threaten monetary and banking stability, the Monetary Board may, by a vote
of at least five (5) of its members, behaviour the Bangko Sentral to grant extraordinary
loans or advances to banking institutions secured by eligible assets, provided that
while such loans or advances are outstanding, the debtor institution shall not, except
upon prior ehaviortion by the Monetary Board, expand the total volume of its loans
or investments.

As of 23 July 2009, outstanding rediscounting loan availments reached P53.3 billion,

of which about 90% was channeled to commercial banks, 7% to thrift banks, and 3%
to rural banks.

The increase in the budget for the rediscounting facility was a preemptive move to
ensure orderly market conditions and greater confidence in the financial system. Any
decision to increase the budget would be based on an assessment of current monetary
conditions and the inflation outlook.

CURRENCY ISSUE
The BSP has the exclusive power to issue the national currency. All notes and coins
issued by the BSP are fully guaranteed by the Government and are considered legal
tender for all private and public debts.

LENDER OF LAST RESORT

A lender of last resort is an institution, usually a country's central bank, that offers
loans to banks or other eligible institutions that are experiencing financial difficulty or
are considered highly risky or near collapse.

The Central bank of a country that has the authority and financial resources to act as
the ultimate source if credit. In emergencies, it extends loans to solvent but illiquid
depository institutions whose failure to obtain credit would have a destabilizing effect
on the national or regional economy. Central banks have their governments backing
to make such loans for retaining the publics confidence in the countrys financial
system. When central banks themselves get into difficulties, the International
Monetary Fund (IMF) may act as a lender of last resort.

The lender of last resort functions to protect individuals who have deposited funds
and to prevent customers from withdrawing out of panic from banks with temporary
limited liquidity. Commercial banks usually try not to borrow from the lender of last
resort because such action indicates that the bank is experiencing financial crisis.
Critics of the lender-of-last-resort methodology suspect that the safety it provides
inadvertently tempts qualifying institutions to acquire more risk than necessary, since
they are more likely to perceive the potential consequences of risky actions as less
severe.
 FINANCIAL SUPERVISION
The Monetary Board of the Banko Sentral ng Pilipinas serves as the supervisors of all
banks. The Monetary Board may at any time prescribe minimum cash margins for the
opening of letters of credit, and may relate the size of the required margin to the
nature of the transaction to be financed. It may also issue such regulations as it may
deem necessary with respect to the maximum permissible maturities of the loans and
investments which the banks may make, and the kind and amount of security to be
required against the various types of credit operations of the banks. Whenever the
Monetary Board considers it advisable to prevent or check an expansion of bank credit,
the Board may place an upper limit on the amount of loans and investments which
the banks may hold, or may place a limit on the rate of increase of such assets within
specified periods of time. The Monetary Board may apply such limits to the loans and
investments of each bank or to specific categories thereof. The Monetary Board may
prescribe minimum ratios which the capital and surplus of the bank must bear to the
volume of their assets, or to specific categories thereof, and may alter said ratios
whenever it deems necessary.
The Bangko Sentral shall represent the Government in all dealings, negotiations and
transactions with the International Monetary Fund and shall carry such accounts as
may result from Philippine membership in, or operations with, said Fund. The Bangko
Sentral may be authorized by the Government to represent it in dealings, negotiations
or transactions with the International Bank for Reconstruction and Development and
with other foreign or international financial institutions or agencies. The President
may, however, designate any of his other financial advisors to jointly represent the
Government in such dealings, negotiations or transactions. The Bangko Sentral shall
be the official depository of the Government. The Bangko Sentral shall open a general
cash account for the Treasurer of the Philippines, in which the liquid funds of the
Government shall be deposited. Transfers of funds from this account to other
accounts shall be made only upon order of the Treasurer of the Philippines. In the
performance of its functions as fiscal agent, the Bangko Sentral may engage the
services of other government-owned and controlled banks and of other domestic
banks for operations in localities at home or abroad in which the Bangko Sentral does
not have offices or agencies adequately equipped to perform said operations:
Provided, however, That for fiscal operations in foreign countries, the Bangko Sentral
may engage the services of foreign banking and financial institutions.
MANAGEMENT OF FOREIGN RESERVES
According to Article II of Chapter 3 of the The New Central Bank Act (RA 7653),
BSP shall exercise its powers under the Act to preserve the international value of the
peso and maintain its convertibility into other convertible currencies (Sec. 64). To
maintain the international stability and convertibility of Philippine Peso, BSP shall
maintain International Reserves enough to meet the foreseeable demands for foreign
currencies (Sec 65).
 The International Reserves includes but not limited to: (a) gold; (b) assets in
foreign currencies in the form of: documents and instruments customarily employed
for the international transfer of funds; demand and time deposits in other central
banks, treasuries and commercial banks abroad; foreign government securities; and
foreign notes and coins. The Monetary Board shall endeavor to hold foreign exchange
resources of the Bangko Sentral in freely convertible currencies; moreover, the Board
shall give particular considerations to the prospects of continued strength and
convertibility of the currencies in which the reserve is maintained, as well as to
anticipated demands for such currencies. Also the Monetary Board shall set other
standards and qualifications which foreign exchange assets must meet in order to be
included in the reserves of Bangko Sentral and BSP shall can covert any of the asset in
the reserve into other assets (Sec 66).
Whenever the international reserve of the Bangko Sentral falls to a level which
the Monetary Board considers inadequate, or if the international reserve is in looming
danger of falling to the inadequate level, or whether the international reserve is falling
because of payments or remittances abroad which, in the opinion of the Monetary
Board, are opposing to the national welfare, the Monetary Board shall; (a) take
appropriate remedial actions and measures within their powers and the Bangko
Sentral under the Act; (b) submit to the president and the Congress a detailed report
describing and the analysis of the nature and causes of the decline, the remedial
actions and measures and other relevant information about the decline.
If the remedial actions fail to correct the decline of the reserve, or if the decline
cannot be corrected except by chronic restrictions on exchange and trade transactions
or by sacrifice of the domestic objectives of a balanced and sustainable growth of the
economy, the Monetary Board shall propose to the president and with the notice of
the Congress additional actions to restore the equilibrium of the international reserve
in the international balance of payments of the Philippines (Sec 67).
DETERMINATION OF EXCHANGE RATE POLICY
A. THE PHILIPPINES FOREIGN EXCHANGE POLICY
At present, the country's exchange rate policy supports a freely floating exchange rate
system whereby the Bangko Sentral ng Pilipinas (BSP) leaves the determination of the
exchange rate to market forces. Under a market-determined exchange rate
framework, the BSP does not set the foreign exchange rate but instead allows the
value of the peso to be determined by the supply of and demand for foreign exchange.
Thus, the BSPs participation in the foreign exchange market is limited to tempering
sharp fluctuations in the exchange rate. On such occasions of excessive movements,
the BSP enters the market mainly to maintain order and stability. When warranted,
the BSP also stands ready to provide some liquidity and ensure that legitimate
demands for foreign currency are satisfied
In the Philippines, banks trade foreign exchange using an electronic trading platform
called the Philippine Dealing and Exchange Corp. (PDEx) through any of the following
ways: Reuters or Bloomberg dealing, over-the-counter, or via brokers. The PDEx
captures all spot transactions (which involve the purchase or sale of a foreign currency
for immediate delivery, i.e., within one day for US dollars and within two days for other
convertible currencies), done through any of these transaction vehicles.
When banks trade, either for their clients or for their own accounts, they follow a set
of guidelines laid by the BSP (Manual of Regulations on Foreign Exchange Transactions,
as amended; Circular 471 dated 24 January 2005; and other applicable BSP regulations)
to ensure orderly trades in the foreign exchange markets.

B. MEASURES TAKEN BY BANKO SENTRAL NG PILIPINAS TO MAINTAIN ORDER

AND STABILITY IN THE FOREIGN EXCHANGE MARKET
The BSP uses three general tools to operationalize the exchange rate policy, namely:
1) participation in the foreign exchange market; 2) monetary policy measures; and 3)
foreign exchange regulations.
The BSP participates by buying and selling foreign exchange in the foreign exchange
market to ensure order and temper destabilizing swings in the exchange rate. It does
not set out to reverse the underlying trend of the peso, whether it is appreciating or
depreciating; rather, its objective is to smooth out volatility in the exchange rates.
Assume that there is an artificially strong demand for dollars which is causing the
exchange rate to weaken. The BSP can suppress speculation by selling dollars to
moderate the depreciating trend. If there is an artificially strong supply of dollars
relative to demand in the market, the BSP can soften the appreciation of the peso by
buying dollars.
If the exchange rate movement threatens to move inflation rate outside its target
range, the BSP also uses monetary policy measures, including adjusting the key policy
rates or the interest rates it charges for its borrowing and lending activities. For
example, in periods of weakening pressure on the peso, increases in interest rates
tend to dampen the demand for dollars. As a result, the depreciation pressure on the
peso eases. However, any such interest rate action needs to be consistent with the
price stability objective of the BSP.
The BSP has also combined foreign exchange intervention and monetary measures
with market-based foreign exchange regulations to prevent major exchange rate
volatility. For example, during the recent episodes of strong foreign exchange inflows,
the BSP pursued liberalization of the countrys existing foreign exchange regulatory
framework, particularly those pertaining to outward investments, foreign exchange
swaps, capital movements as well as banks foreign exchange positions. The reforms
allowed individuals and businesses greater access to foreign exchange for outward
investment and over-the-counter transactions. By making the FX environment more
open, some of the pressure on the exchange rate could be alleviated.
 C. POLICY RESPONSES BY THE BANKO SENTRAL NG PILIPINAS
1. FX Rules Further Liberalized February 2016
To maintain a safe and sound financial system and a stable FX market, the
Monetary Board approved further liberalization of the rules governing FX
transactions in the Philippines. The amendments include: o Prior BSP approval
is no longer required for the borrowings from offshore sources/FCDUs of banks
of the following resident entities:
Purely private sector loans (i.e., without guarantee from the public sector or banks)
that are intended to finance energy-/powerrelated projects; and
Private non-bank financial institutions engaged in microfinance activities where loan
proceeds will be used for microfinance lending.
Allowing the conversion to FX of pesos arising from disapproved subscriptions of non-
resident investors to stock rights offering of companies listed at the Philippine Stock
Exchange.

Other procedural/clarificatory amendments to the Manual of Regulations on

Foreign Exchange Transactions were also approved for better guidance of
users.

2. FX Rules Relaxed/Liberalized anew July 2016

As part of continuing efforts to keep regulations appropriate for the changing needs
of the Philippine economy and following the thrust towards greater openness in view
of the countrys increasing integration with global markets, the MB further liberalized
existing regulations governing transactions in FX effective 15 September 2016:

Increased the amount of FX that Philippine residents may purchase from the
banking system without supporting documentation (other than an application
to purchase FX) for legitimate transactions from US$120,000 to US$500,000
(for individuals) and US$1 million (for corporates). This is to enhance and
further facilitate access to FX of both individuals and Exchange Rate March
2017 Department of Economic Research 9 corporates for legitimate non-trade
current account transactions.

Allowed the deposit by Philippine residents of FX purchased from banks for

certain underlying transactions (such as for travel abroad and payment of
certain obligations to non-residents) into their Foreign Currency Deposit Unit
(FCDU) accounts, prior to outward remittance to the intended nonresident
beneficiaries. This is to provide residents with greater flexibility in managing
their cash flows as well as provide greater ease in transacting in FX.
 Lifted the prohibition on the sale of FX by banks and their forex corporations
for residentto-resident transactions. This is to facilitate payment by residents
of obligations to their resident counterparties and allow further diversification
of residents investments.

Lifted prior BSP approval and registration requirements for private sector loans
to be obtained from FCDUs/Expanded FCDUs of banks. This is in line with the
BSPs thrust to facilitate access of the private sector to bank financing.

Increased the amount of Philippine currency that may be brought into/out of

the country from P10,000 to P50,000. This is to provide greater convenience
to travelers to and from the Philippines, and allow settlement of obligations in
jurisdictions outside the Philippines where the Philippine Peso is accepted as a
currency of settlement.

3. Further Amendments to Foreign Exchange (FX) Regulations December 2016

The BSP eased rules on foreign exchange flows anew to facilitate entry
of significant amounts for foreign banks in the country as they move to
meet capital requirements. This is intended to align regulations with
the provisions of R.A. No. 10641, which allowed the full entry of foreign
banks and BSP Circular No. 858 dated 21 November 2014.

The approved policy changes mainly involve: (a) inclusion of an express

provision that the FX funding for permanently assigned capital of
foreign bank branches must be inwardly remitted and converted to
pesos at the exchange rate prevailing at the time of remittance,
pursuant to the pertinent provisions of the Manual of Regulations for
Banks (MORB); (b) use of a general reference to the MORB instead of
citing R.A. Nos. 7721 and 10641 or the specific provisions of the MORB;
and (c) revision of the definitions of unimpaired capital of a local
bank, unimpaired capital of foreign bank branches and unimpaired
capital of foreign bank subsidiaries as contained in the MORB.