Evolution of
central banking
There are three key goals of modern monetary
policy.
The first and the most important is price stability or
stability in the value of money.
The second goal is a stable real economy, often
interpreted as high employment and high
sustainable economic growth.
And the third goal is financial stability.
BEGINNINGS
17th century
Swedish Riksbank (1668) - the first institution was
recognized as a central bank.
- As a joint stock bank.
- As a clearing house for commerce
Bank of England (1694) – the most famous central bank
of the era.
Other central banks were set up later in Europe for
similar purposes, though some were established to deal
with the monetary disarray. Banque de France – was
established by Napoleon in 1800 to stabilize the currency
after the hyperinflation of paper money during the
French Revolution.
While these early central banks helped fund the
government’s debt. They were also private entities that
engaged in banking activities.
NATURE AND MEANING
OF CENTRAL BANK
A central bank is the term used to describe the
authority responsible for policies that affect a
country’s supply of money and credit. More
specifically, a central bank uses its tools of monetary
policy -- open market operations, discount window
lending, changes in reserve requirements – to affect
short-term interest rates and the monetary base
(currency held by the public plus bank reserves) and
to achieve important policy goals.
Central banks often oversee the
commercial banking system of their respective
countries. In contrast to a commercial bank, a central
bank possesses a monopoly on printing the national
currency, which usually serves as the nation’s legal
tender.
The primary function of central bank is to provide
the nation’s money supply, but more active duties
include controlling interest rates an acting as a lender
of last resort to the banking sector during times of
financial crisis.
OVERVIEW OF THE BANGKO SENTRAL NG PILIPINAS
The Bangko Sentral ng Pilipinas (BSP) is the
central bank of the Republic of the Philippines. It
was established on 3 July 1993 pursuant to the
provision of the 1987 Philippine constitution and
the New Central Bank Act of 1993.
The BSP took over from the Central bank of
the Philippines, which was established on
January 3, 1949, as the country’s central
monetary authority. The BSP enjoys fiscal and
administrative autonomy from the National
Government in the pursuit of its mandated
responsibilities.
HISTORY
CHRONOLOGY OF EVENTS: CENTRAL
BANKING IN THE PHILIPPINES
1900 > Act No. 52 was passed by the First
Philippine Commission placing all banks under the
Bureau of Treasury. The Insular Treasurer was
authorized to supervise and examine banks and
banking activities.
Feb. 1929 > The Bureau of Banking under the
Department of Finance took over the task of banking
supervision.
1939 > A bill establishing a central bank was drafted by
Secretary of Finance Manuel Roxas and approved
by the Legislative. However, the bill was returned
by the US government, without action, to the
Commonwealth government.
1946 > A joint Philippine-American Finance
Commission was created to study the Philippine
currency and banking system.
The commission recommended the reform of the
monetary system, the formation of a central bank and
the regulation of money and credit. The charter of the
Central Bank of Guatemala was chosen as the model of
the proposed central bank charter.
Aug 1947 > A Central Bank council was formed to
review the commission’s report and prepare the
necessary legislation for implementation.
Feb. 1948 > President Manuel Roxas submitted
to Congress a bill “Establishing the
central Bank of the Philippines, defining its power
in the administration of the monetary and banking
system, amending pertinent provisions of the
Administrative Code with respect to the currency and
the Bureau of Banking, and for other purposes.
15 June 1948>The bill was signed into law as Republic
Act no. 265 (The Central back Act) by President Elpidio
Quirino.
3 January 1949 > The Central Bank of the Philippines
(CBP) was inaugurated and formally opened
with Hon. Miguel Cuaderno, Sr. as the first
governor.
The broad policy objectives contained in RA No. 265
guided the CBP in the implementation of its duties
and responsibilities, particularly in relation to the
promotion of economic development in addition to
the maintenance of internal and external monetary
stability.
November 1972 > R.A. No. 265 was amended by
Presidential Decree No. 72 to make the CBP more
responsive to changing economic conditions.
PD No. 72 emphasized the maintenance of domestic and
international monetary stability as the primary objective
of the CBP. Moreover, CBP’s authority was expanded to
include not only the supervision of the banking system
but also the regulation of the entire financial system.
January 1981 >Further amendments were made with
the issuance of PD No. 1771 to improve and strength
the financial system, among which was the increase
in the capitalization of the CBP from P10 million to
P10 billion.
1986 >Executive Order No. 16 amended the Monetary
Board membership to promote greater harmony and
coordination of the government monetary and fiscal
policies.
3 July 1993 >The Bangko Sentral ng Pilipinas (BSP) was
established to replace the CBP as the country’s central
monetary authority.
