Central Banking

The central bank touches the lives of all residents in the country. First of
all, the central bank takes care of the payments system of the country.
Billions of transactions are made each day involving bills and coins
printed or minted by the central bank. The central bank also facilitates
the transfer of high-valued goods and services among economic agents
by providing the necessary infrastructure for alternative modes of
payment, such as checks and electronic transfers. Somewhere in the
remotest part of the country, a bank has just opened, giving local folks
access to formal financial services for the first time in their lives. But in
another part of the country, a bank has just been closed, leaving many
depositors wondering what to do with bills falling due in due in couple of
days. Central bank policy has a lot to do with the opening and closure of
commercial banks.
Business enterprises are not only busy producing and marketing their goods and services, but
they also exert extra effort looking at best lending rate a bank can offer them. They know very
well that a few percentage points added to the interest rate can have large implications on the
profitability, if not viability, of their enterprises. Likewise, depositors are looking for safe and
sound banks that can give them the most attractive deposit rate. Although interest rates are
freely determined in the market, still they are very much influenced by monetary policy.

Central banking in the Philippines has already undergone profound changes in the last 25
years. More changes are expected to occur in the coming years.
Development of Central Banking in the
Philippines
 Traditional Functions
Central Banks have four (4) traditional functions, namely:

1. To implement monetary policy

2. Sole issuer of currency
3. Monitor, supervise and regulate the financial system
4. Management of international reserves

The central bank is the government agency tasked to implement the countrys monetary policy. It either
expands or contracts the money supply depending on what the volume of transaction in the economy
requires. Easing or tightening money supply is not just simply increasing or decreasing the money base
(by now you should have understood very well what money base is), but is more about the flexibility of
the money base relative to the demand for money in the economy.