CENTRAL BANKING

 CENTRAL BANKING

THROUGH ITS VARIOUS MONETARY TOOLS

It can regulate the monetary and credit conditions of the country

CENTRAL BANK

Increase investments

…production

…employments

…incomes

It can stabilize, together with fiscal policies.

In the Formulation and Implementation of Monetary Policies 

CENTRAL BANK requires…

High degree of competence

Integrity

Central Bank must demonstrate an unquestionable independence from any political considerations which affect adversely its functions.

Central Bank

Envisioned primarily to promote economic growth for the welfare of the people.

Not to serve the interests of the elite and those who are in power. 

Central Bank

Central Bank may be referred to as a body corporate entrusted with the responsibility of administering the monetary, banking, and credit system of the country with due regard to the availability, use, and cost of money and credit for attainment of a balanced and sustainable growth of the economy, as well as, the  maintenance of internal and external monetary stability in the country.

-R.A No. 265, Sec. 1,2,  64 and 67

Before 20th century

There had been a loose and vague of central banking.

Banking institutions that substantially performed the role of central bankers in many banks of the world, referred to as “banks of issue” or “national banks”.

Bank of England

Founded in 1964 as a joint-stock Company

Crowned as the “Mother of All Central Banks”

Develop the “art of Central Banking” or “job of the ideal central bank”

Objectives of the CB

1. Primarily to maintain internal and external monetary stability in the Phil., and to preserve the international value of the peso and its convertibility into other freely convertible currencies;

2. To foster monetary, credit and exchange conditions conducive to a balanced and sustainable growth of the economy. 

Summarized as…

“to help counteract inflationary and deflationary movements, and to share in creating conditions favorable to sustained high employment, stable values, growth of the country, and a rising level of consumption” (The Federal Reserve System, 1951)

Main Function of Federal Reserve

Is to regulate the flow of money and credit.

Central Bank is not wanting of methods, tools, or instruments of monetary management (credit controls)  

Instruments or tools of monetary control

General (quantitative)

Selective (qualitative)

A particular tool or instrument of monetary management may be regarded as producing a tight or easy money policy.  

General monetary or credit control

Example:

Open-market operations

Discount rates

Reserve requirements

Selective instrument of monetary regulation 

Examples:

Margin instruments on letters of credit

…and other selective Instrument credit

-Chandler and Goldfeld, 1978

Functions of CB ideal jobs”

1. As a fiscal agent of the government (later on added to this responsibility is two-fold, such as : banker and financial advisor of the government);

2. As a caretaker of commercial banks’ reserves (this refers to legal reserve requirements);

3. As manager of international reserve of the country (consisting of gold and foreign exchange);

4. As issuer of notes (legal tender money; and

5. As regulator or controller or credit.

Features of Central Bank

1. Except in isolated cases, said not to be directly dealing with any particular individual/s or the public at large;

2. Although it may realize profits from its organization, it is definitely organized or created not for the purpose of profit-making or profit-seeking venture;

3. As a body corporate owned by the government, it is expected to fulfill its role as an agency of the government in implementing public policy; 
4. The latter exercises supervision and regulation over monetary, credit, and banking system of the country; and
5. Serves as the linkage or the connecting link between the banking system of one country and that of another or the rest of the world.

The Central Bank of the Philippines

Inaugurated in January 3, 1949
3,000 employees(present)

More than 1 billion dollar international reserve as against $420M in January 1949 

• 1950’s, maneuvered the country’s monetary and banking activities to extraordinary growth through exchange and trade controls.  

• 1960’s; monetary and credit controls called “laissez faire’ economy with a modified fixed exchange rate.

• 1970’s, “unrestricted” exchange rate or “floating peso”, putting back the economy on the pathways of stability.

1980’s, restructuring of the banking system.

Banking Laws

Amended to give…

1. Universal Banking
- an expanded commercial banking authority

2. Lifting of interest rates ceiling on deposits.

Role of CB

To ensure a strong monetary foundation and adequate resource inputs to the development process. 

-Gov. Gregorio S. Licaros 

THANK YOU!

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