MODULE III

Central Bank Monetary Authority, and Functions and

Operations of the Bangko Sentral ng Pilipinas

Lesson 1 The Monetary Board, Board Membership Evaluated,

Power of the Monetary Board, Power and Duties of the
Bangko Sentral ng Pilipinas Governor
Lesson 2 Transparency of the Bangko Sentral ng Pilipinas, Bangko
Sentral ng Pilipinas Organization, and Domestic/
International Monetary Stability
Lesson 3 Characteristics of Central Banks, Monetary Tools, and
Activities of the Bangko Sentral ng Pilipinas
Lesson 4 The Bangko Sentral ng Pilipinas and Industrial
Development, The Bangko Sentral ng Pilipinas
Coordinate with International Institutions, Credit
Operations, Security Plants of the Bangko Sentral ng
Pilipinas, Gold and Silver Reserve Management

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MODULE III
Central Bank Monetary Authority,
and Functions and Operations
of the Bangko Sentral ng Pilipinas

 INTRODUCTION

This module presents the monetary board, board membership

evaluated, power of the monetary board, power and duties of the
Bangko Sentral ng Pilipinas governor, transparency of the Bangko
Sentral ng Pilipinas, Bangko Sentral ng Pilipinas organization, and
domestic/international monetary stability, characteristics of central
banks, monetary tools, and activities of the Bangko Sentral ng
Pilipinas, the Bangko Sentral ng Pilipinas and industrial development,
the Bangko Sentral ng Pilipinas coordinate with international
institutions, credit operations, security plants of the Bangko Sentral
ng Pilipinas, and gold and silver reserve management.

OBJECTIVES

After studying the module, you should be able to:

1. discuss the power of the monetary board as well as the powers

and duties of the BSP governor
2. illustrate the Bangko Sentral ng Pilipinas organization
3. define and discuss the domestic and international monetary
stability
4. enumerate and discuss the characteristics of central banks define
monetary tools
5. explain how the BSP coordinate with the international institutions
6. describe the security plants of the BSP
7. discuss the gold and silver reserve management of the Bangko
Sentral ng Pilipinas

 DIRECTIONS/ MODULE ORGANIZER

There are four lessons in the module. Read each lesson

carefully then answer the learning activities and summative test to
find out how much you have benefited from it. Work on these
learning activities and summative test carefully and submit your
output to your instructor/professor.

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In case you encounter difficulty, discuss this with your

instructor/professor during the face-to-face meeting.

Good luck and happy reading!!!

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Lesson 1

 The Monetary Board,

Board Membership
Evaluated, Power of the
Monetary Board, Power
and Duties of the Bangko
Sentral ng Pilipinas
Governor

The Monetary Board

The powers and function of Bangko Sentral are exercised by its

Monetary Board, which has seven members appointed by the President of
the Philippines. Under the New Central Bank Act, one of the government
sector members of the Monetary Board must also be a member of the
Cabinet designated by the President.

The New Central Bank Act establishes certain qualifications for the
members of the Monetary Board and also prohibits members from holding
certain positions with other governmental agencies and private institutions
that may give rise to conflicts of interest. With the exception of the
members of the Cabinet, the Governor and the other members of the
Monetary Board serve terms of six years and may only be removed for cause.

The Monetary Board meets 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. Usually, the Board meets every Thursday but
on some occasions, it convenes to discuss urgent issues.

In the exercise of its authority, the Monetary Board shall:

1. Issue rules and regulations it considers necessary for the effective

discharge of the responsibilities and exercise of the powers vested
upon the Monetary Board and the Bangko Sentral;
2. 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. The legal
units of the Bangko Sentral shall be under the exclusive supervision
and control of the Monetary Board;

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Governor of the Bangko Sentral ng Pilipinas

The Governor of the Bangko Sentral ng Pilipinas is the chief

executive officer of Bangko Sentral ng Pilipinas. This position succeeds and
replaces the earlier post of Governor of the Central Bank of the
Philippines.

Roles with Other Agencies

He also serves as the chairman and principal representative of the

Monetary Board; chairman of Anti-Money Laundering Council and Philippine
International Convention Center; vice-chairman of the Governing Council of
Agriculture Credit Policy Council; member of the Capital Market
Development Council, Export Development Council, PhilExport board of
trustees, and Philippine Export-Import Credit Agency; and director of
Philippine Deposit Insurance Corporation, National Development Council,
and National Home Mortgage Finance Corporation. [2]

Powers and Duties

His powers and duties as the chief executive officer of the Bangko Sentral
shall be to:

1. Prepare the agenda for the meetings of the Monetary Board and to
submit for the consideration of the Board the policies and measures
that he believes to be necessary to carry out the purposes and
provisions of said Act;

2. Execute and administer the policies and measures approved by the

Monetary Board;

3. Direct and supervise the operations and internal administration of the

Bangko Sentral. The Governor may delegate certain of his
administrative responsibilities to other officers or may assign specific
tasks or responsibilities to any full-time member of the Monetary
Board without additional remuneration or allowance whenever he
may deem fit or subject to such rules and regulations as the Monetary
Board may prescribe;

4. Appoint and fix the remunerations and other emoluments of

personnel below the rank of a department head in accordance with
the position and compensation plans approved by the Monetary
Board, as well as to impose disciplinary measures upon personnel of
the Bangko Sentral, subject to the provisions of Section 15(c) of said
Act: Provided, that removal of personnel shall be with the approval of
the Monetary Board;

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5. Render opinions, decisions, or rulings, which shall be final and

executory until reversed or modified by the Monetary Board, on
matters regarding application or enforcement of laws pertaining to
institutions supervised by the Bangko Sentral and laws pertaining to
quasi-banks, as well as regulations, policies or instructions issued by
the Monetary Board, and the implementation thereof; and

6. Exercise such other powers as may be vested in him by the Monetary

Board.

In capacity as the principal representative of Bangko Sentral and the

Monetary Board and in accordance with the instructions of the Monetary
Board, he shall be 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,

including private counsel, as may be authorized by the Monetary
Board, in any legal proceedings, action or specialized legal studies;
and

4. Delegate his power to represent the Bangko Sentral, to other officers

upon his own responsibility: Provided, however, that in order to
preserve the integrity and the prestige of his office, the Governor of
the Bangko Sentral may choose not to participate in preliminary
discussions with any multilateral banking or financial institution on
any negotiations for the Government within or outside the
Philippines. During the negotiations, he may instead be represented
by a permanent negotiator.

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 LEARNING ACTIVITY

Differentiate Bank supervision from bank regulation.

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Lesson 2

 Transparency of the
Bangko Sentral ng
Pilipinas, Bangko
Sentral ng Pilipinas
Organization, and
Domestic/International
Monetary Stability

Transparency of the Bangko Sentral ng Pilipinas

Transparency can be defined as an environment in which a central

bank provides, in an open, clear and timely manner, all relevant information
on its mandate, strategies, assessments, policy decisions, as well as its
procedures to the public and the markets.

Transparency helps ensure the public’s genuine understanding of

monetary policymaking. This understanding can be achieved through a clear
and effective communication. Most central banks, including the Bangko
Sentral ng Pilipinas (BSP), consider transparency and communication as
integral components of their monetary policy framework. Effective
communication and interaction with the public, the media and the markets
enhance the credibility, predictability and effectiveness of monetary policy.

Communication is in fact important not only as a means to convey

information about monetary policy but also as a policy tool for the central
bank. This also allows the public to provide feedback which, in turn, helps
further improve the effectiveness of monetary policy. Transparency not only
helps the central bank to carry out its mandate, but also makes the
institution more accountable for its actions. When committed to
transparency, the central bank has greater self-discipline, and this then
helps ensure consistent policy decisions over time. Encouraging public
scrutiny of monetary policy actions encourages the central bank to make
better policy decisions. These basic principles highlight the need to conduct
an assessment of the transparency and communication policies of the BSP,
in consideration of more than eight years of using inflation targeting as its
framework for monetary policy.

As highlighted by Mervyn King in 2005: “Inflation targeting is a

framework for making and communicating decisions.”

Communication is a key feature of the inflation-targeting framework.

Since the early 1990s, most central banks have become more transparent,
and inflation targeters were relatively the most transparent.

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Bangko Sentral ng Pilipinas Organization

The BSP's Organizational Structure as of 21 November 2019

Governance of the Bank

The Monetary Board exercises the powers and functions of the BSP,
such as the conduct of monetary policy and supervision of the financial
system. Its chairman is the BSP Governor, with five full-time members from
the private sector and one member from the Cabinet.

The Governor is the chief executive officer of the BSP and is required
to direct and supervise the operations and internal administration of the
BSP. A deputy governor (or a Senior Assistant Governor in the case of the
Currency Management Sector) heads each of the BSP's operating sector as
follows:

• Financial Supervision Sector is mainly responsible for the regulation

of banks and other BSP-supervised financial institutions, as well as
the oversight and supervision of financial technology and payment
systems

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• Monetary and Economics Sector is mainly responsible for the

operations/activities related to monetary policy formulation,
implementation, and assessment.

• Corporate Services Sector is mainly responsible for the effective

management of corporate strategy, communications, and risks, as
well as the BSP's human, financial, technological, and physical
resources to support the BSP's core functions.

• Currency Management Sector is mainly responsible for the

forecasting, production, distribution, and retirement of Philippine
currency, as well as security documents, commemorative medals, and
medallions.

Domestic and International Monetary Stability

Domestic Monetary Stability

The Monetary Board (Domestic Monetary Stability) shall endeavor

control any expansion or contraction in monetary aggregates which is
prejudicial to the attainment or maintenance of price stability.

Domestic monetary regimes focus mainly on price stability.

International Monetary Stability

The international monetary system exhibits elements of both

stability and instability. Stabilizing forces include both automatic feedback
mechanisms that dampen fluctuations, acceptance of international rules by
participants, and deliberate policies to stabilize balance of payments and
exchange rates.

International monetary currencies are allowed to float to varying

degrees: free floating among the principal international currencies coexists
with greater or lesser management of other currencies.

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 LEARNING ACTIVITY

Identify the word or group of words that is being referred to in the

sentence.

1. It can be defined as an environment in which a

central bank provides, in an open, clear and timely manner, all relevant
information on its mandate, strategies, assessments, policy decisions, as
well as its procedures to the public and the markets.

2. Most central banks, including the Bangko

Sentral ng Pilipinas (BSP), they consider these as integral components of
their monetary policy framework.

3. This is in fact important not only as a means to

convey information about monetary policy but also as a policy tool for the
central bank.
4. As highlighted by Mervyn King in 2005: it is a
framework for making and communicating decisions.

5. It exercises the powers and functions of the

BSP, such as the conduct of monetary policy and supervision of the financial
system.
6. He is the chief executive officer of the BSP and
is required to direct and supervise the operations and internal
administration of the BSP.

7. He heads each of the BSP's operating sector but

in the case of the Currency Management Sector he is a Senior Assistant
Governor.
8. Mainly responsible for the regulation of banks
and other BSP-supervised financial institutions, as well as the oversight and
supervision of financial technology and payment systems.

9. Mainly responsible for the operations/activities

related to monetary policy formulation, implementation, and assessment.

10. Mainly responsible for the effective

management of corporate strategy, communications, and risks, as well as
the BSP's human, financial, technological, and physical resources to support
the BSP's core functions.

11. Mainly responsible for the forecasting,

production, distribution, and retirement of Philippine currency, as well as
security documents, commemorative medals, and medallions.

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12. It shall endeavor control any expansion or

contraction in monetary aggregates which is prejudicial to the attainment or
maintenance of price stability.

13. It focuses mainly on price stability.

14. This system exhibits elements of both

stability and instability.

15. These are allowed to float to varying degrees:

free floating among the principal international currencies coexists with
greater or lesser management of other currencies.

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Lesson 3

 Characteristics of
Central Banks,
Monetary Tools, and
Activities of the
Bangko Sentral ng
Pilipinas

Characteristics of Central Banks

A central bank government established agency responsible for

controlling the nation’s money supply & credit conditions & supervising the
financial system especially in commercial banks & other depository
institutions. The main characteristics of a central bank are given as below –

1. Note Issue -The main feature of a central bank is the issue of

currency notes in the country. The Central bank controls the volume
of currency in the country in accordance with requirements of
business and the general public.

2. Banker to The Govt. -The Central bank is the banker to the

government and also acts as its fiscal agent. The government keeps
its balances with it free of interest. It receives and disburses the
payments on behalf of the government and also makes advances to
the government.

3. Banker’s Bank – The Central bank also acts as the banker to the
scheduled and other banks. It is the custodian of the cash reserves of
the commercial banks. Every schedule bank is required to maintain
not less than 5% of its total demand and time liabilities with the
Central bank. Against these obligations, the scheduled banks are
entitled to loan and rediscount facilities from the bank. This reserve
with the central is considered as good as liquid cash. The provision of
reserve enables the central bank to have control over the credit
creation of the commercial banks.

4. Lender of Last Resort – The Central bank is the lender of last resort.
It maintains a close relationship with the commercial banks. It takes
the responsibility of meeting directly or indirectly, all reasonable
demands for accommodation from the commercial banks, and other
credit institutions under certain terms and conditions.

5. Controller of Credit – One of the important functions of Central bank

is to regulate and control the credit in the country according to the
varying economic situations. Bank rate policy and open market
operations are the direct methods of central bank for controlling

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credit. It can decrease or increase reserve ratio & control the

advances policy of commercial banks.

6. Adviser to The Govt. - It also acts an adviser to government on

financial and economic matters. It provides an expert opinion on
matters relating to economic development or to monetary conditions
of the country.

7. Clearing House -The Central bank acts as the clearing house for other
banks. Under this function the Central bank facilitates the settlement
of bills and cheques of other banks by setting off demands of one
against other and thus helps the functioning of the banking system so
smoothly without actual cash transactions.

8. Controller of Foreign Exchange – the Central bank is responsible for

the management of foreign exchange & maintaining external value of
taka.

Monetary Tools

Central banks have three main monetary policy tools: open market
operations, the discount rate, and the reserve requirement. Most central
banks also have a lot more tools at their disposal. Here are the three
primary tools and how they work together to sustain healthy economic
growth.

1. Open Market Operations

Open market operations are when central banks buy or

sell securities. These are bought from or sold to the country's private banks.
When the central bank buys securities, it adds cash to the banks' reserves.
That gives them more money to lend. When the central bank sells the
securities, it places them on the banks' balance sheets and reduces its cash
holdings. The bank now has less to lend. A central bank buys securities when
it wants expansionary monetary policy. It sells them when it
executes contractionary monetary policy.

2. Reserve Requirement

The reserve requirement refers to the money banks must keep on

hand overnight. They can either keep the reserve in their vaults or at the
central bank. A low reserve requirement allows banks to lend more of their
deposits. It's expansionary because it creates credit.

A high reserve requirement is contractionary. It gives banks less money to

lend. It's especially hard for small banks since they don't have as much to
lend in the first place. That's why most central banks don't impose a reserve
requirement on small banks. Central banks rarely change the reserve

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requirement because it's difficult for member banks to modify their

procedures.

Central banks are more likely to adjust the targeted lending rate than
the reserve requirement. It achieves the same result with less disruption.

3. Discount Rate

The discount rate is the third tool. It's the rate that central
banks charge its members to borrow at its window. Since it's higher than the
fed funds rate, banks only use this if they can't borrow funds from other
banks.

Using the discount window also has a stigma attached. The financial
community assumes that any bank that uses the discount window is in
trouble. Only a desperate bank that's been rejected by others would use the
discount window.

How It Works

Central bank tools work by increasing or decreasing total liquidity.

That’s the amount of capital available to invest or lend. It's also money and
credit that consumers spend. It's technically more than the money supply,
known as M1 and M2. The M1 symbol denotes currency and check deposits.
M2 is money market funds, CDs, and savings accounts. Therefore, when
people say that central bank tools affect the money supply, they are
understating the impact.

Activities of Central Banks

• setting the official interest rate – used to manage both inflation and
the country's exchange rate – and ensuring that this rate takes effect
via a variety of policy mechanisms

• controlling the nation's entire money supply

• the Government's banker and the bankers' bank ("lender of last

resort")

• managing the country's foreign exchange and gold reserves and the
Government bonds

• regulating and supervising the banking industry

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 LEARNING ACTIVITY

Identify the word or group of words that is being referred to in the

sentence.

1. It is a government established agency

responsible for controlling the nation’s money supply & credit conditions &
supervising the financial system especially in commercial banks & other
depository institutions.

2. The main feature of a central bank is the issue

of currency notes in the country.

3. The Central bank is the banker to the

government and also acts as its fiscal agent.

4. The Central bank also acts as the banker to the

scheduled and other banks.

5. The Central bank is the lender of last resort.

6. One of the important functions of Central bank

is to regulate and control the credit in the country according to the varying
economic situations.

7. It also acts an adviser to government on

financial and economic matters. It provides an expert opinion on matters
relating to economic development or to monetary conditions of the country.

8. The Central bank acts as the clearing house for

other banks.

9. Open market operations, the discount rate,

and the reserve requirement.

10. The Central bank is responsible for the

management of foreign exchange & maintaining external value.

11. When central banks buy or sell securities and

these are bought from or sold to the country's private banks.

12. It refers to the money banks must keep on

hand overnight and they can either keep the reserve in their vaults or at the
central bank.

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13. It is the rate that central banks charge its

members to borrow at its window.

14. It is used to manage both inflation and the

country's exchange rate – and ensuring that this rate takes effect via a
variety of policy mechanisms.

15. This is referred to as the ‘’lender of last

resort".

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Lesson 4

 The Bangko Sentral ng

Pilipinas Coordinate with
International Institutions,
Credit Operations, Security
Plants of the Bangko Sentral
ng Pilipinas, Gold and Silver
Reserve Management

The Bangko Sentral ng Pilipinas Coordinate with International Institutions

The Bangko Sentral ng Pilipinas coordinate with the following

Multilateral and International Institutions:

1. Asian Development Bank

The Asian Development Bank is a regional development bank

established on 19 December 1966, which is headquartered in the
Ortigas Center located in the city of Mandaluyong, Metro Manila,
Philippines. The company also maintains 31 field offices around the
world to promote social and economic development in Asia and the
Pacific and representative offices in Washington, Frankfurt, Tokyo
and Sydney.

Headquarters: Mandaluyong
President: Masatsugu Asakawa
Purpose: Economic Development
Membership: 68 countries
Founded: 19 December 1966

The Asian Development Bank is an international development

finance institution whose mission is to help its developing member
countries reduce poverty and improve the quality of life of their
people.

2. Bank for International Settlements

The Bank for International Settlements is an international financial

institution owned by central banks that "fosters international
monetary and financial cooperation and serves as a bank for central
banks".

Headquarters: Basel, Switzerland

Location: Basel, Switzerland (Extraterritorial jurisdiction)
Leader: Agustín Carstens
Number of employees: 600
Main Organ: Board of Directors

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The mission is to serve central banks in their pursuit of monetary and

financial stability, to foster international cooperation in those areas
and to act as a bank for central banks.

Established in 1930, the BIS is owned by 62 central banks,

representing countries from around the world that together account
for about 95% of world GDP. Its head office is in Basel, Switzerland
and it has two representative offices: in Hong Kong SAR and in Mexico
City.

We pursue our mission by:

➢ fostering discussion and facilitating collaboration among

central banks
➢ supporting dialogue with other authorities that are responsible
for promoting financial stability
➢ carrying out research and policy analysis on issues of relevance
for monetary and financial stability
➢ acting as a prime counterparty for central banks in their
financial transactions
➢ serving as an agent or trustee in connection with international
financial operations

As part of our work in the area of monetary and financial stability, we

regularly publish related analyses and international banking and
financial statistics that underpin policymaking, academic research
and public debate.

With regard to our banking activities, our customers are central banks
and international organisations. We do not accept deposits from, or
provide financial services to, private individuals or corporate entities.

3. International Monetary Fund

The International Monetary Fund (IMF) is an international

organization that aims to promote global economic growth and
financial stability, encourage international trade, and reduce
poverty.

Managing Director: Kristalina Georgieva

Chief Economist: Gita Gopinath
Headquarters location: Washington, D.C., United States
Membership: 189 countries
Abbreviation: IMF

The International Monetary Fund (IMF) is based in Washington, D.C.,

and currently consists of 189 member countries, each of which has
representation on the IMF's executive board in proportion to its

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financial importance, so that the most powerful countries in the

global economy have the most voting power.

The IMF's fundamental mission is to help ensure stability in the

international system. It does so in three ways: keeping track of the
global economy and the economies of member countries; lending to
countries with balance of payments difficulties; and giving practical
help to members.

4. World Bank

The World Bank is an international financial institution that

provides loans and grants to the governments of poorer countries for
the purpose of pursuing capital projects. It comprises two
institutions: the International Bank for Reconstruction and
Development, and the International Development Association.

Parent organization: World Bank Group

Headquarters: Washington, D.C., United States
Founded: July 1944
Membership: 189 countries (IBRD); 173 countries (IDA)
Subsidiaries: International Finance Corporation, MORE
Founders: John Maynard Keynes, Harry Dexter White
Key people: David Malpass (President)
Anshula Kant (MD and CFO)
Carmen Reinhart (Chief Economist, 15 June 2020)

Conceived in 1944 at the Bretton Woods Monetary Conference

in Bretton Woods, New Hampshire, the World Bank's initial aim was
to help rebuild European countries devastated by World War II. Its
first loan was to France in 1947 for post-war reconstruction.

Credit Operations

Loans and Credit Operations

Rediscounting

Rediscounting is a standing credit facility provided by the BSP to help

banks meet temporary liquidity needs by refinancing the loans they extend
to their clients. Through the facility, the BSP also makes possible the timely
delivery of credit to all productive sectors of the economy. Moreover,
rediscounting is one of the monetary tools of the BSP to regulate the level
of liquidity in the financial system. The BSP’s rediscounting is administered
by the Department of Loans and Credit.

Overdraft Credit Line

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The BSP also makes available an overdraft credit line (OCL) to banks
participating directly in the clearing operations of the Philippine Clearing
House Corporation to cover shortfalls in the banks’ demand deposit accounts
with the BSP arising from clearing operations. The BSP will impose a ceiling
on the amount of overdraft a bank may incur due to failure to cover clearing
losses through interbank borrowings and/or repurchase agreements with
BSP. The ceiling is defined as the sum of clean OCL equivalent to 15% of the
bank’s rediscounting line with BSP and the collateralized OCL that will be
imposed by the BSP. A bank not meeting the following criteria:

1. CAMELS composite rating of at least “3”;

2. CAR of at least 10%; or
3. No chronic reserve deficiencies for the immediately preceding one
year, or other measures as may be defined by the BSP for this
purpose, should apply for a collateralized OCL in an amount
equivalent to at least 5% of its demand deposit liabilities as of end of
month, two months prior to the date of application with the DLC;
otherwise, its outward clearing items shall be subject to second day
value dating. A bank which meets the above criteria may also apply
for collateralized OCL in any amount.

Emergency Loans

The BSP also extends financial assistance to banking institutions in

the form of fully secured liquidity (emergency) loans as a temporary
remedial measure to help solvent banks overcome their liquidity problems
arising from causes beyond their control, pursuant to Section 84 of R.A. No.
7653, as amended by R.A. 11211. The assistance shall be limited to the
amount needed by the applicant bank to overcome the emergency or
financial predicament but shall not exceed 50% of its deposits and provided
that any emergency advance should be collateralized by government
securities and unencumbered first-class collateral (primarily real estate).

Security Plants of the Bangko Sentral ng Pilipinas

The BSP Security Plant Complex

The Security Plant Complex which is located in

Quezon City houses a banknote printing plant, a
securities printing plant, a mint and a gold
refinery. The banknote printing plant and the mint
take care of producing currency notes and coins,
respectively.

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The BSP Regional Offices and Branches

The BSP has three regional offices performing cash

operations, cash administration, loans and
rediscounting, bank supervision and gold buying
operations. These regional offices are located in La
Union, Cebu City and Davao City.

There are also 19 BSP branches situated in Batac (Ilocos Norte),

Tuguegarao City (Cagayan), Dagupan City (Pangasinan), Cabanatuan City
(Nueva Ecija), San Fernando City (Pampanga), Lucena City (Quezon), Naga
City (Camarines Sur), Legazpi City (Albay), Dumaguete City (Negros
Oriental), Bacolod City (Negros Occidental), Iloilo City (Iloilo), Roxas
City(Roxas), Tacloban City (Leyte), Butuan City (Agusan del Norte), Cagayan
de Oro City (Misamis Oriental), Ozamiz City (Misamis Occidental), Cotabato
City, General Santos City (South Cotabato) and Zamboanga City (Zamboanga
del Sur). They perform cash operations, cash administration, and in certain
areas, gold buying operations.

Gold and Silver Reserve Management

Shipment of Gold Reserves

The Bangko Sentral ng Pilipinas has recently received inquiries about
the airway bills issued by an airline for the gold bars shipped by the Bangko
Sentral. The shipping of gold bars out of the country has been part of the
gold operations of the BSP since its establishment in 1993. In fact,
numerous countries also ship their gold reserves to a bank account located
outside their respective country, for example, an account with the Bank of
England or Federal Reserve Bank of New York, so that the gold can be used
for international financial transactions.

As of 31 October 2000, the Bangko Sentral has gold reserves valued at

approximately USD1.86 billion. Of these, about 95% had been shipped out of
the country via a location swap transaction with an accredited international
financial institution. Under a location swap transaction, the Bank’s
counterparty delivers an equivalent amount of gold to the BSP’s account at
the Bank of England after they take delivery of gold from the BSP’s vault
and ship the gold out of the country. The counterparty can ship the gold
taken from the BSP to another destination other than London where they
have their refinery, vault or buyer, and use gold that is already in London to
deliver to the BSP’s account at the Bank of England. This way, the
counterparty and Bangko Sentral both save on the cost of shipping.

The Bangko Sentral ships its gold reserves to its account at the Bank
of England so that the gold reserves may be used for investment in the
international market. For example, the BSP’s gold reserves can be deposited

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with accredited foreign financial institutions, in the name of the Bangko

Sentral, to generate interest income. The shipments are always approved by
the Monetary Board and properly documented.

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 LEARNING ACTIVITY

Identify the word or group of words that is being referred to in the

sentence.

1. It is a regional development bank established

on 19 December 1966, which is headquartered in the Ortigas Center located
in the city of Mandaluyong, Metro Manila, Philippines.

2. This bank is an international financial

institution owned by central banks that "fosters international monetary and
financial cooperation and serves as a bank for central banks".

3. It is an international organization that aims to

promote global economic growth and financial stability, encourage
international trade, and reduce poverty.

4. It is based in Washington, D.C., and currently

consists of 189 member countries, each of which has representation on the
IMF's executive board in proportion to its financial importance, so that the
most powerful countries in the global economy have the most voting power.

5. This is an international financial institution

that provides loans and grants to the governments of poorer countries for
the purpose of pursuing capital projects.

6. It is a standing credit facility provided by the

BSP to help banks meet temporary liquidity needs by refinancing the loans
they extend to their clients.

7. It is defined as the sum of clean OCL

equivalent to 15% of the bank’s rediscounting line with BSP and the
collateralized OCL that will be imposed by the BSP

8. The BSP also extends financial assistance to

banking institutions in the form of fully secured liquidity loans as a
temporary remedial measure to help solvent banks overcome their liquidity
problems arising from causes beyond their control, pursuant to Section 84 of
R.A. No. 7653, as amended by R.A. 11211.

9. It is located in Quezon City houses a banknote

printing plant, a securities printing plant, a mint and a gold refinery.

10. The BSP three regional offices performing

cash operations, cash administration, loans and rediscounting, bank
supervision and gold buying operations.

Module III
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 MODULE SUMMARY

In module III, you have learned about Central Bank Monetary

Authority, and Functions and Operations of the Bangko Sentral ng Pilipinas.

There are four lessons in module III.

Lesson 1 consists of the monetary board, board membership

evaluated, power of the monetary board, power and duties of the Bangko
Sentral ng Pilipinas Governor.

Lesson 2 deals with the transparency of the Bangko Sentral ng

Pilipinas, Bangko Sentral ng Pilipinas organization, and domestic/
international monetary stability.

Lesson 3 deals with characteristics of central banks, functions,

monetary tools, and activities of the Bangko Sentral ng Pilipinas.

Lesson 4 consists of The Bangko Sentral ng Pilipinas and industrial

development, The Bangko Sentral ng Pilipinas coordinate with international
institutions, credit operations, security plants of the Bangko Sentral ng
Pilipinas, gold and silver reserve management

Congratulations! You have just studied Module III. Now you are ready
to evaluate how much you have benefited from your reading by answering
the summative test. Good Luck!!!

Module III
 26

 SUMMATIVE TEST

Identify the word or group of words that is being referred to in the

sentence.

1. It exercises the powers and functions of the

Bangko Sentral which has seven members appointed by the President of the
Philippines.

2. It establishes certain qualifications for the

members of the Monetary Board and also prohibits members from holding
certain positions with other governmental agencies and private institutions
that may give rise to conflicts of interest.

3. He is the chief executive officer of the Bangko

Sentral ng Pilipinas and this position succeeds and replaces the earlier post
of Governor of the Central Bank of the Philippines.

4. It establishes certain qualifications for the

members of the Monetary Board and also prohibits members from holding
certain positions with other governmental agencies and private institutions
that may give rise to conflicts of interest.

5. He also serves as the chairman and principal

representative of the Monetary Board; chairman of Anti-Money Laundering
Council and Philippine International Convention Center; vice-chairman of
the Governing Council of Agriculture Credit Policy Council; member of the
Capital Market Development Council, Export Development Council,
PhilExport board of trustees, and Philippine Export-Import Credit Agency;
and director of Philippine Deposit Insurance Corporation, National
Development Council, and National Home Mortgage Finance Corporation.

6. It can be defined as an environment in which a

central bank provides, in an open, clear and timely manner, all relevant
information on its mandate, strategies, assessments, policy decisions, as
well as its procedures to the public and the markets.

7. Most central banks, including the Bangko

Sentral ng Pilipinas (BSP), they consider these as integral components of
their monetary policy framework.

8. This is in fact important not only as a means to

convey information about monetary policy but also as a policy tool for the
central bank.
9. As highlighted by Mervyn King in 2005: it is a
framework for making and communicating decisions.

Module III
 27

10. It exercises the powers and functions of the

BSP, such as the conduct of monetary policy and supervision of the financial
system.
11. He is the chief executive officer of the BSP
and is required to direct and supervise the operations and internal
administration of the BSP.

12. He heads each of the BSP's operating sector

but in the case of the Currency Management Sector he is a Senior Assistant
Governor.
13. Mainly responsible for the regulation of banks
and other BSP-supervised financial institutions, as well as the oversight and
supervision of financial technology and payment systems.

14. Mainly responsible for the

operations/activities related to monetary policy formulation,
implementation, and assessment.

15. Mainly responsible for the effective

management of corporate strategy, communications, and risks, as well as
the BSP's human, financial, technological, and physical resources to support
the BSP's core functions.

16. Mainly responsible for the forecasting,

production, distribution, and retirement of Philippine currency, as well as
security documents, commemorative medals, and medallions.

17. It shall endeavor control any expansion or

contraction in monetary aggregates which is prejudicial to the attainment or
maintenance of price stability.

18. It focuses mainly on price stability.

19. This system exhibits elements of both

stability and instability.

20. These are allowed to float to varying degrees:

free floating among the principal international currencies coexists with
greater or lesser management of other currencies.

21. It is a government established agency

responsible for controlling the nation’s money supply & credit conditions &
supervising the financial system especially in commercial banks & other
depository institutions.

22. The main feature of a central bank is the

issue of currency notes in the country.

Module III
 28

23. The Central bank is the banker to the

government and also acts as its fiscal agent.

24. The Central bank also acts as the banker to

the scheduled and other banks.

25. The Central bank is the lender of last resort.

26. One of the important functions of Central

bank is to regulate and control the credit in the country according to the
varying economic situations.

27. It also acts an adviser to government on

financial and economic matters. It provides an expert opinion on matters
relating to economic development or to monetary conditions of the country.

28. The Central bank acts as the clearing house

for other banks.

29. Open market operations, the discount rate,

and the reserve requirement.

30. The Central bank is responsible for the

management of foreign exchange & maintaining external value.

31. When central banks buy or sell securities and

these are bought from or sold to the country's private banks.

32. It refers to the money banks must keep on

hand overnight and they can either keep the reserve in their vaults or at the
central bank.

33. It is the rate that central banks charge its

members to borrow at its window.

34. It is used to manage both inflation and the

country's exchange rate – and ensuring that this rate takes effect via a
variety of policy mechanisms.

35. This is referred to as the ‘’lender of last

resort".

36. It is a regional development bank established

on 19 December 1966, which is headquartered in the Ortigas Center located
in the city of Mandaluyong, Metro Manila, Philippines.

37. This bank is an international financial

institution owned by central banks that "fosters international monetary and
financial cooperation and serves as a bank for central banks".

Module III
 29

38. It is an international organization that aims to

promote global economic growth and financial stability, encourage
international trade, and reduce poverty.

39. It is based in Washington, D.C., and currently

consists of 189 member countries, each of which has representation on the
IMF's executive board in proportion to its financial importance, so that the
most powerful countries in the global economy have the most voting power.

40. This is an international financial institution

that provides loans and grants to the governments of poorer countries for
the purpose of pursuing capital projects.

41. It is a standing credit facility provided by the

BSP to help banks meet temporary liquidity needs by refinancing the loans
they extend to their clients.

42. It is defined as the sum of clean OCL

equivalent to 15% of the bank’s rediscounting line with BSP and the
collateralized OCL that will be imposed by the BSP

43. The BSP also extends financial assistance to

banking institutions in the form of fully secured liquidity loans as a
temporary remedial measure to help solvent banks overcome their liquidity
problems arising from causes beyond their control, pursuant to Section 84 of
R.A. No. 7653, as amended by R.A. 11211.

44. It is located in Quezon City houses a banknote

printing plant, a securities printing plant, a mint and a gold refinery.

45. The BSP three regional offices performing

cash operations, cash administration, loans and rediscounting, bank
supervision and gold buying operations.

Module III