Professional Documents
Culture Documents
STABILIZATION AND
FUNCTIONS OF THE BSP
BANKING LAWS
BY: AGUILAR, FABILA, LINAJA, NARZABAL,
OLIVAREZ, PEREZ, SAMBRANA
I. THE UNIT OF MONETARY VALUE
THE PESO
-A unit of monetary value in the Philippines (P)
-Peso is divided into 100 equal parts called
centavo (c)
All monetary obligation shall be settled in
Philippine currency in legal tender. However,
parties may agree that obligation shall be
settled in other currency.
I. THE UNIT OF MONETARY VALUE
CURRENCY
Definition; all Philippine notes and coins issued in
accordance with NCBA.
VALUE OF CURRENCY
- Currency has value because people are
willing to accept it in exchange for goods or
services or payment of debt.
I. THE UNIT OF MONETARY VALUE
VALUE OF CURRENCY
-Money has no value as a commodity but has
value as means of medium of exchange
-Value of goods and services are measured by
terms of medium
-Not applicable if no confidence in currency
and people would use foreign currency
II. ISSUE OF MEANS OF PAYMENT
EXCLUSIVE ISSUE POWER
1.BSP shall have sole power to issue currency within the Philippines
2.MB may issue regulations to prevent circulation of foreign
currency, currency substitute or facsimiles of BSP notes.
3.BSP shall have the authority to investigate, arrest, and conduct
searches to maintain integrity of currency.
4.Violations shall have imprisonment of 5-10 years unless RPC
provides for greater penalty.
II. ISSUE OF MEANS OF PAYMENT
RELATED CRIMES UNDER RPC;
1.ART163 (MAKING, IMPORTING AND UTTERING FALSE COINS)
2.ART164 (MUTILATION OF COINS)
3.ART165 (SELLING OF FALSE OR MUTILATED COINS WITHOUT CONNIVANCE)
4.ART166 (FORGING TREASURE NOTES OR OTHER DOCUMENTS PAYABLE TO
BEARER)
5.ART167 (COUNTERFEITING, IMPORTING OR UTTERING INSTRUMENTS NOT
PAYABLE TO BEARER)
6.ART168 – ILLEGAL POSSESSION AND USE OF FALSE TREASURY NOTES
7.ART169 – HOW FORGERY IS COMMITTED
II. ISSUE OF MEANS OF PAYMENT
EXCEPTION TO TERRITORIALITY OF PENAL LAWS:
ART2 of RPC provides that the territoriality rule does not apply,
1.Should forge or counterfeit any coin or currency note the
Philippines or obligations or securities of the government.
2.Liable for acts connected with introduction of such into
islands.
II. ISSUE OF MEANS OF PAYMENT
LIABILITY FOR NOTES AND COINS:
-Notes and coins issued by BSP shall be liability of BSP
-It shall be issued in amounts not exceeding assets of BSP
-Notes and coins shall be a first and paramount lien on all assets of
BSP
-BSP’s holding of its own notes and coins shall not be considered a
part of its currency issue and not part of assets and liabilities
II. ISSUE OF MEANS OF PAYMENT
LEGAL TENDER POWER
- All notes and coins issued by BSP shall be fully guaranteed by the
Government and shall be legal tender in Philippines for all debts,
public or private
- Checks representing demand deposits do not have legal tender
and acceptance is at the option of the creditor
- Check cleared and credited to account of creditor shall be
equivalent to delivery
II. ISSUE OF MEANS OF PAYMENT
LEGAL TENDER POWER
- BSP Circ. 537 of 2006 – maximum amount of coins to be considered as legal tender.
1,5,10 peso coins – 1k
1,5,10,25 centavos – 100
- Art 1249 of NCC states that all payments of debts shall be in currency stipulated and
if not possible, currency in legal tender
- It also states that when there is payment by promissory note, it shall produce only
effect when encashed or impaired through fault of creditor. Action derived from
obligation is held in abeyance
- Art. 1250 of NCC, where there is extraordinary inflation or deflation, value of
currency at time of establishment of obligation shall be basis of payment
II. ISSUE OF MEANS OF PAYMENT
CHARACTERISTICS OF THE CURRENCY
- MB with approval of President shall prescribe denominations, dimensions,
designs of notes.
- Notes shall state that they are liabilities of BSP and fully guaranteed by
government
- Notes shall bear signature, in facsimile, of President and BSP Governor
- MB with approval of President shall prescribe weight, fitness, design and
denomination of coins
- In minting of coins, availability of metals and its price shall be considered
II. ISSUE OF MEANS OF PAYMENT
PRINTING OF NOTES AND MINING OF COINS
-MB shall prescribe amounts of notes and coins to be
printed and minted. MB has authority to contract
institutions for such
-All expenses incurred shall be for the accounts of BSP
II. ISSUE OF MEANS OF PAYMENT
INTERCONVERTIBILITY OF CURRENCY
-BSP shall exchange on demand and without charge
Philippine currency in any other denomination requested
-If BSP is temporarily unable to provide such, it shall
deliver denomination nearest
II. ISSUE OF MEANS OF PAYMENT
REPLACEMENT OF CURRENCY UNFIT FOR CIRCULATION
- BSP shall withdraw from circulation and demonetize all notes and
coins unfit for circulation and shall replace them
- BSP shall not replace notes under mutilated condition and
without compensation to bearer
- Mutilated condition: (1) identification is impossible, (2) signs of
filing, clipping, (3) notes lost more than 2/5 of surface or all
signatures
II. ISSUE OF MEANS OF PAYMENT
RETIREMENT OF OLD NOTES AND COINS
- BSP may call for replacement of notes (more than 5 yrs old) and
coins (more than 10 yrs old)
- Notes and coins replaced shall remain legal tender for 1 year from
date of call
- After period, such shall cease to be to be legal tender but can be
exchanged at par and without charge in BSP during following year
- After said period, notes and coins not exchanged shall cease to be
a liability of BSP and shall be demonetize
III. DOMESTIC MONETARY
STABILIZATION
GUIDING PRINCIPLE ON MONETARY STABILIZATION
- MB shall endeavour to control any expansion or contract of
monetary aggregates prejudicial to price stability
POWER TO DEFINE TERMS
- MB shall define monetary aggregates, credit and prices and
made public such definitions
III. DOMESTIC MONETARY
STABILIZATION
ACTION WHEN ABNORMAL MOVEMENTS OCCUR IN MONETARY AGGREGATES,
CREDIT AND PRICES
Whenever the following happen:
1.Monetary aggregates or level of credit increases or decreases by more than 15%
2.Cost of living index increases by more than 10% in relation to level of month
existing of preceding year
3.Other circumstances so warrant;
3.1 The monetary board shall submit reports and shall state whether these
changes is a threat to stability
3.2 MB shall continue to submit periodic report to President and Congress until
monetary aggregates, credit and prices disturbances disappeared or controlled
III. DOMESTIC MONETARY
STABILIZATION
ACTION WHEN ABNORMAL MOVEMENTS OCCUR IN MONETARY
AGGREGATES, CREDIT AND PRICES
When such event occurs that endanger stability of economy, MB
shall:
1.Take remedial measures
2.Submit to President and Congress of report containing the (1)
cause, (2) extent of change and (3) measures taken by MB
IV. INTERNATIONAL MONETARY
STABILIZATION
● BSP → exercise its powers under the NCBA
○ Purpose: to preserve the international value of the peso; maintain its
convertibility into other freely convertible currencies (ex.) current payments
for foreign trade and invisibles)
B. International Reserves:
● Maintain international stability and convertibility of the Philippine peso → BSP shall
maintain international reserves in order to meet any forseeable net demands
● Judging the adequacy of the international reserves = Monetary Board shall be
guided by the prospective receipts and payments of foreign exchange by the
Philippines
● Monetary Board → gives special attention to the volume and maturity of the PSP’s
own liabilities in foreign currencies, foreign exchange assets and liabilities of other
banks operating in the Philippines and other persons and entities in the Philippines
C. COMPOSITION OF THE
INTERNATIONAL RESERVES
International reserves of the BSP may include (but not
limited to) the following assets:
● Gold
● Assets in foreign currencies
○ Documents and instruments customarily employed for the
international transfer of funds
○ Demand and time deposits in central banks
○ Treasuries and commercial banks abroad
○ Foreign government securities
○ Foreign notes and coins
● MB shall endeavor to hold the foreign exchange resources of BSP in
freely convertible currencies
○ MB shall give particular consideration to the prospects of
continued strength and convertibility of the curencies in which the
reserves is maintained and anticipated demand for such
currencies as well
● MB shall also issue regulations determining other qualifications that the
foreign exchange assets must meet for it to be included in the
international reserves of the BSP
● BSP shall be free to convert any of the assets in its international reserves
into other assets
○ Ex.) Gold can be turned into foreign notes and/or coins
D. Action when the International Stability of the Peso is
Threatened
● International reserve of the BSP falls into inadequacy
○ Inadequate = unable to meet prospective net demands on the BSP for
foreign currencies
● International reserve appears to be in imminent
danger of falling to such level
● International reserve is falling due to payments or
remittances abroad which are contrary to national
welfare
In these cases, it is up to the Monetary Board to provide
certain remedies
The MB shall do the following:
● The MB along with the concurrence of at least five (5) of its members and with
the approval of the President can:
○ Temporarily suspend or restrict sales of exchange by the BSP
○ May subject all transactions in gold and foreign exchange to license by the
BSP
○ May require that any foreign exchange obtained be delivered to BSP (ex.
Act No. 6426)
E. ACQUISITION OF
INCONVERTIBLE CURRENCIES
● BSP shall avoid the acquisition and holding of currencies
which are not freely convertible, and may acquire such
currencies in an amount exceeding the minimum
balance necessary to cover current demands for said
currencies only when, and to the extent that such
acquisition is considered by the MB to be in national
interest
● MB → determines the procedures which shall apply to the
acquisition and disposition by the BSP of foreign
exchange which is not freely utilizable in the international
market
F. EXCHANGE RATES
● The MB shall determine the exchange rate policy of the country
● MB shall determine the rates at which the BSP shall buy and sell
spot exchange, and shall establish deviation limits from the
effective exchange rate or rates as it may deem proper
● BSP shall not collect any additional commissions or charges of any
sort, other than actual telegraphic or cable costs incurred by it
● MB shall determine the rates for other types of foreign exchange
transactions by the BSP, including purchases and sales of foreign
notes and coins; margins will not exceed the corresponding
margins for spot exchange transactions by more than the
additional costs or expenses involved in each type of transactions
G. OPERATIONS WITH FOREIGN
ENTITIES
● The MB may authorize BSP to grant and receive loans from
foreign banks and other foreign or international entities
(public and private) and may engage in such other
operations with these entities to its character as a central
bank
● BSP can also act as an agent or correspondent for such
entities
● Upon authority of the MB, the BSP may pledge any gold or
other assets as a form of security against loans which it
receives from foreign or international entities
VI. REGULATION OF FOREIGN EXCHANGE
OPERATIONS OF THE BANKS
A. Foreign Exchange Holdings of the Banks
● MB may require the banks to sell to the BSP or to other banks all
or part of their surplus holdings of foreign exchange in order to
maintain the international stability and convertibility of the peso
(rates established by the NCBA)
● MB shall determine the net assets and net liabilities of banks and
shall, take into account the bank’s net worth, outstanding
liabilities, actual and contingent, or such other financial or
performance ratios as may be appropriate under the
circumstances (it shall be applied in all banks uniformly)
B. REQUIREMENT OF BALANCED
CURRENCY POSITION
● MB may require the banks to maintain a balanced
position between their assets and liabilities in
Philippine pesos or in any other currency or
currencies in which they operate
● Banks shall be granted a reasonable period of time
in which to adjust their currency positions to any such
requirement
● The powers mentioned above shall be exercised only
in special circumstances and shall be applied to all
banks
C. REGULATION OF NON-SPOT
EXCHANGE TRANSACTIONS
● In order to restrain the banks from taking speculative positions with
respect to future fluctuations in foreign exchange rates, the MB
may issue such regulations governing bank purchases and sales of
non-spot exchange as it may consider necessary for said purpose
● Banks shall bear the risks of non-compliance with the terms of the
foreign exchange documents and instruments which they buy and
sell, as well as any other typically commercial or banking risks (not
covered by the provisions of NCBA regarding non-spot exchange
transactions)
E. INFORMATION ON EXCHANGE
OPERATIONS
● Banks shall report to the BSP the volume and composition of their
purchases and sales of gold and foreign exchange each day, and
must furnish such additional information as the BSP may request with
reference to the movements in their accounts in foreign currencies
● The MB may also require other persons and entities to report to it
currently all transactions or operations in gold, in any shape or form,
and in foreign exchange whether entered into or undertaken by them
directly or through agents, or to submit such data as may be required
on operations or activities giving rise to or in connection with or relating
to a gold or foreign exchange transaction
● MB shall prescribe the forms on which such declarations must be made
● The accuracy of the declarations may be verified by the BSP by
whatever inspection it may deem necessary
VII. LOANS TO BANKING AND
OTHER FINANCIAL INSTITUTIONS
A. Guiding Principle
Rediscounts, discounts, loans and advances shall
be used to influence the volume of credit consistent
with the objective of price stability.
B. Authorized types of Credit Operations
The BSP may normally and regularly carry
on the following Credit operations with banking
institutions operating in the Philippines:
1. Commercial credits – credits where maturities are not more than
180 days and resulting from:
a.) Purchase and sale of readily saleable goods,
exportation, importation and their transportation (PESTI)
4. Advances – grant advances against the following kinds of collateral for fixed
periods which shall not exceed 180 days, except #4: (GSC-CUNN)
i. Gold
iv. Credit instrument in no. 2 for period not exceed 360 days
· No. 2 provides situation where BSP grants loan to a bank with uncertain
financial condition but not insolvent
C. Limits
D. First Tranche
· Amount of 1st tranche shall be limited to 25% of total deposit and deposit
substitute of bank and secured by government securities and
unencumbered first class collaterals
· Amount of first tranche may exceed 25% of the bank’s total deposit
and deposit substitutes if it is adequately secured by government
securities and unencumbered first class collaterals, principal
stockholders furnish an acceptable undertaking to indemnify and hold
harmless from a suit a conservator whose appointment the MB may
find necessary.
· Prior to release of first tranche, bank shall submit resolution of its board
of directors authorizing BSP to evaluate their assets to determine that it
is good for collateral.
E. Second Tranche
F. Shares Collateral
· Prohibition in Sec. 128 of the NCBA shall not apply if it refers to acceptance as
collateral of share and their acquisition due to foreclosure proceeding
· Sec 128 – BSP shall not acquire or accept shares as collateral and
shall not participate in ownership of enterprise. BSP shall not engage in
development banking or financing except for outstanding loans obtained
or extended for development financing
G.Overdraft
· Overdraft in its account with the BSP shall be
eliminated within a period of 5 in consecutive banking
days as prescribed in Section 102 of the NCBA.
IX. CREDIT TERMS
A. Interest and Rediscount
C. Repayment of Credits
D. Other Requirements
F. Prohibitions
· BSP shall not acquire or accept shares as collateral and shall not participate
in ownership of enterprise.
1. Banker’s acceptance
2. Promissory notes
3. Participations
4. Certification of assignment
5. Repurchase agreements
➔ MB shall determine what instruments are
considered as deposit substitutes
➔ Deposit substitutes of commercial, industrial
and non-financial companies for the limited
purpose of financing their own needs shall
not be considered deposit substitutes
Required Reserves against Peso Deposits and
foreign currency deposits
➔ MB may fix minimum reserve ratios to peso and foreign
currency deposits that each bank shall maintain and shall
be applied to all banks uniformly and without
discrimination
3. Foreign Loans
•Incurred in accordance with the law and regulation of monetary authority
•Information made public
•President may contract foreign loans
Requisites:
1.Prior concurrence of MB
2. Subject to limitation of the law
3. Submit to Congress a report of loans made by government that would
increase foreign debt
REPRESENTATION ON THE NATIONAL ECONOMIC
AND DEVELOPMENT AUTHORITY (NEDA)