money - 70 Years Of Central Banking In The Philippines

MONEYMAKERS The Bangko Sentral ng Pilipinas (BSP.GOV.PH / MANILA BULLETIN)

The year it all began: 1949
Creation of the Central Bank of the Philippines
Headquarters: Intendencia Building, Manila
Enabling Law: RA No. 265

It was a time of reconstruction from the devastation of World War II. Exchange and trade restrictions, and allocation of the country’s international reserves to priority sectors gave rise to the manufacture of import substitutes and the beginning of Philippine industrialization.
The Central Bank of the Philippines issued bonds to raise funds, crafted a rural credit program, and took over supervision of banks. The central bank’s policies on money, credit, and banking during its formative years helped transform the economy from largely agricultural to agro-industrial and increased self-reliance.

Relevant laws passed
Rural Banks Act (RA No. 720, 1952)
Deposit Secrecy Act (RA No. 1405, 1955)

The central bank continued the shift to a market economy in accordance with its mandate to promote productivity, employment, and real income. A freely fluctuating exchange rate was adopted, new banks mushroomed, and central bank’s regional offices set up to support countryside development.
Toward the late ’60s, the country was on the brink of financial and monetary crisis. The central bank rescheduled the country’s foreign debt from short- to medium-term obligations and secured fresh funds.
Following a banking crisis where the central bank effectively dealt with a bank run by providing emergency advances to banks, a law was passed to implement a deposit insurance system under the Philippine Deposit Insurance Corporation.
Catchphrases during this time would resonate in the years to come: deposit guarantees, bank crisis management, peso devaluation, and an apolitical central bank.

Relevant laws passed:
Establishment of Philippine Deposit Insurance Corporation (RA No. 3591, 1963)
Savings and Loan Association Act (RA No. 3779, 1963)
Private Development Banks Act (RA No. 4093, 1964)
Foreign Borrowings Act (RA No. 4860, 1966)
Financing Company Act (RA No. 5980, 1969)

The ’70s was one of the most challenging decades in the history of the central bank. It had to restructure its debts, secure fresh loans, and implement a floating exchange rate system. To contain inflation, interest rates were raised and excess liquidity was mopped up through high-yield CB Certificates of Indebtedness that encouraged savings and investments.
The central bank moved to its new headquarters in Manila, started producing the country’s currency and refining gold at its Quezon City Security Plant Complex, setting a record for Asia, and built the Philippine International Convention Center in time for the country’s historic hosting of the 1976 World Bank-International Monetary Fund annual meeting.

Relevant laws passed
Foreign Currency Deposit Act (RA No. 6426, 1972)
Pawnshop Regulatory Act (PD No. 114, 1973)
Investment Houses Law (PD No. 129, 1973)
Offshore Banking System in the Philippines (PD No. 1034, 1976)

At a time of crisis, the central bank had to deal with a balance of payments deficit, limited foreign exchange reserves, and maturing foreign obligations at a time of high-interest rates overseas and protectionism.
The debt moratorium, double-digit inflation, and an economy weakened by lack of credit and capital flight due to loss of confidence were addressed by bilateral and multilateral debt negotiations as well as debt reduction schemes that included debt-to-equity conversion.
The government-funded Industrial Fund was created to refinance financially distressed but operationally viable enterprises.
A stabilization program that included a steep depreciation of the peso, forex rationing, higher reserve requirements to fortify the banking sector, and the issuance of high-yield CB or “Jobo” bills, added up to restore confidence and stability to the economy.

The central bank instituted reforms to ease the country’s foreign debt burden and to liberalize and deregulate the financial system, resulting in savings from lower interest rates, longer repayment terms, and the availability of standby funds.
Regulations on the opening of new banks and branches were liberalized, universal banks were given broader authority to invest in allied undertakings including insurance and, for the first time, banks were allowed to operate off-site automated teller machines.
In 1993, the Bangko Sentral ng Pilipinas (BSP) officially opened for business as the new monetary authority of the country, following the passage of the New Central Bank Act, which declared price stability as primary objective.
The Bangko Sentral modernized and strengthened the banking sector through liberalization, entry of foreign banks, and raising of minimum capitalization of banks. Price stability was achieved as inflation remained at single-digit levels.

Relevant laws passed
Creation and Operation of Rural Banks (RA No. 7353, 1992)
The New Central Bank Act (RA No. 7653, 1993)
Liberalization of Foreign Banks (RA No. 7721, 1994)
Regulation of the Organization and Operation of Thrift Banks (RA No. 7906, 1995)
Revised Non-Stock Savings and Loan Association Act (RA No. 8367, 1997)
Liberalization of Philippine Investment House Industry (RA No. 8366, 1997)
Act Amending the Financing Company Act (RA No. 8556, 1998)

The new millennium saw the BSP aligning itself with global benchmarks. It shifted its monetary policy framework from monetary aggregates to inflation targeting.
Banking reforms were implemented to raise prudential standards to international norms, create a culture of good corporate governance, foster greater competition advantageous to the public, and deepen banks’ reach toward small borrowers, including microentrepreneurs.
Starting mid-2000, the BSP shifted to risk-based capitalization, a consolidated approach to bank supervision, the institutionalization of enhanced frameworks on prompt corrective action, the first-ever guidelines on consumer protection, and enhanced information technology risk management.
While many other jurisdictions experienced contractions, the Philippine banking system remained strong even in the wake of global financial turmoil. The number of deposit accounts increased, outstanding deposit balances rose, lending across economic activities went up while the non-performing loans ratio declined.
Financial inclusion, coupled with financial literacy and consumer protection, were—and still are—the buzzwords during this time, as seen in the establishment of the Economic and Financial Learning Center (EFLC) in the BSP head office and the mini-EFLCs in the countryside, and the creation of the Credit Surety Fund, which is a credit enhancement program for the micro, small, and medium enterprises.

Relevant laws passed
General Banking Law (RA No. 8791, 2000)
Anti-Money Laundering Act (RA No. 9160, 2001) as amended by RA No. 9194, 2003; RA No. 10167, 2012; RA No. 10365, 2014)
Establishment of Barangay Microbusiness (RA 9178, 2002)
Special Purpose Vehicle Act (RA No. 9180, 2002)
Establishment of Provident Personal Savings Plan (RA No. 9505, 2008)

For BSP to remain dynamic, various capacity-building initiatives were pursued such as the formulation of the enterprise-wide risk management framework and communication plan.
The interest rate corridor system was refined, allowing monetary operations to have stronger traction on market interest rates.
The capital market is deepened with the unveiling of a roadmap for local currency debt market development and operationalized with the launch of the Government Securities Repurchase Program. Foreign exchange rules have been liberalized to facilitate foreign investments and fuel activity in the local debt and equities markets. Corporate governance standards and risk management guidelines for BSP-supervised institutions were further aligned.
Corporate governance standards and risk management guidelines for BSP-supervised institutions were further aligned with international standards and practices.
Recognizing the transformation potential of digital technology to promote financial inclusion, financial technology is being leveraged to bring about an inter-operable, safe, and efficient real-time digital payments system, facilitating the shift from being a cash-heavy to a cash-light economy.
The National Payments Systems Act mandates the BSP to oversee payment systems in the Philippines and exercise supervisory and regulatory powers for the purpose of ensuring the stability and effectiveness of the monetary and financial system.
With the recent amendments to its charter, BSP is expected to bolster its capability to promote the stability of prices and the financial system, and make its operations more responsive to the times.

Relevant laws passed
Agriculture and Agrarian Reform Credit and Financing System through Banking Institutions (RA No. 10000, 2010)
Infusion of Foreign Equity in the Capital of Rural Banks (RA No. 10574, 2013)
Full Entry of Foreign Banks in the Philippines (RA No. 10641, 2015)
National Payment Systems Act (RA No. 11127, 2018)
Amendments to the Central Bank Charter (RA No. 11211, 2019)
An Act to Strengthen the Country’s Gross International Reserves (RA No. 11256, 2019)

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