CURRENCY, MONETARY

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:

● Take certain remedial measures in accordance to the limitations provided to the MB

and the BSP by the NCBA
● Submit to the President of the RP and to Congress a detailed report which includes
the following:
○ Nature and causes of the imminent decline
○ Remedial measures already taken or to be taken by the MB
○ The monetary, fiscal or administrative measures further proposed
○ Character and extent of the cooperation required from other government
agencies
● If there is a failure to check the deterioration of the reserve position of the BSP or if
deterioration cannot be checked → MB shall propose to the President, with notice to
Congress to restore equilibrium in the international balance of the payments of the
Philippines
● MB shall submit periodic reports to the President and to Congress until such threat has
disappeared
● Means of Action: MB shall rely on its moral influence and powers (via NCBA)
V. OPERATIONS IN GOLD AND
FOREIGN EXCHANGE
A. Purchases and Sales of Gold
● BSP may buy and sell gold in any form, subject to regulations as
the MB may issue
● Purchases and sales of gold shall be made in the national
currency at the prevailing international market price
determined by the MB
B. Purchases and Sales of Foreign Exchange
● BSP may buy and sell foreign notes and coins, as well as
documents and instruments of types of customarily employed
for the international transfer of funds
● BSP may also engage in future exchange operations
● BSP may engage in foreign exchange transactions with the following entities or
persons only (BIG-FO):
○ Banking Institutions operating in the Philippines
○ The Government, its political subdivisions and instrumentalities
○ Foreign or international financial institutions
○ Foreign governments and their instrumentalities
○ Other entities or persons which the MP authorized as foreign exchange
dealers
● BSP can buy any quantity of foreign exchange demanded, by such institution;
provided that the foreign currencies offered or demanded are freely
convertible into gold or US dollars (although this shall not apply to foreign notes
and coins)
● BSP shall effect its exchange transactions between foreign currencies and the
Philippine peso at the rates determined in accordance with the provisions of
Section 74 of the NCBA
C. Foreign Asset Position of the Bangko Sentral
● BSP shall endeavor to maintain (at all times) a net
positive foreign asset position, so that its gross foreign
exchange assets will always exceed its gross foreign
liabilities
● In the event that the equivalent amount in pesos of
the foreign exchange liabilities of the BSP exceed
twice the equivalent amount in pesos of the foreign
exchange assets of the bank, the BSP shall, within 60
days from the date the limit is exceeded, submit a
report to the Congress stating the origin of these
liabilities, and the manner in which they shall be paid
D. EMERGENCY RESTRICTIONS ON
EXCHANGE OPERATIONS
Why is there a need for the emergency restriction?

● Achieve the primary objective of the BSP

● Protect the international reserves of the BSP in the imminence of or during an
exchange crisis
● During national emergency, and to give the MB and government the time to
take constructive measures to forestall, combat or overcome such crisis or
emergency

● 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

D. Other Exchange Profits and Losses

● 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)

b.) Storing non-perishable goods with are duly insured

2. Production credits – credit where maturities are not more than
360 days and resulting from production of agricultural, animal,
mineral or industrial products
a.) Such must be secured by a pledge of respective
product except if loan is secured by lien on 70% value of
real estate property
3. Other credits – credits not under 1 and 2. BSP can provide funds from non-
inflationary sources: Provided, however, That the Monetary Board shall prescribe
additional safeguards for disbursing these funds.

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

ii. Securities representing obligations of BSP

iii. Credit instruments in no. 1

iv. Credit instrument in no. 2 for period not exceed 360 days

v. Utilized portions of advances in current amount covered by regular

overdraft

vi. Negotiable treasury bills maturity within 3 years

vii. Negotiable bonds by government maturity not more than 10 years

· Rediscounting, discounts, loans and advances in
above provision may not be renewed or extended
unless extraordinary circumstance justify it
· Advances in No. 6 and 7 may not exceed 80% of
current market value of collateral

C. Loans for Liquidity Purposes

· BSP may extend loans and advances for a period not
more than 7 days without collateral for purpose of
providing liquidity in the bank in times of need
VIII. EMERGENCY LOANS AND
ADVANCES
A. Nature of Emergency Loans or Advances
· Emergency loan or advance – credit facility
intended to assist a bank experiencing serious
liquidity problems from causes beyond its control.
· Grant of such is discretionary on MB and is a
temporary remedial measure. It must also be fully
secured in order to be granted.
B. When Granted
1. In period of national or local emergency or financial panic, MB
may at 5 members vote, authorize grant of extraordinary loans to
banks secured by assets

o Such loans are outstanding and the debtor institution shall

not expand the bank’s total volume of loans or investments
without prior authorization of the MB.
2. MB, at 5 members vote, grant emergency loans to banks even
during normal period to assist bank in precarious financial condition
brought by unforeseen events or foreseeable events though
inevitable
o Bank should not be insolvent and has assets to secure
advances
· No.1 contemplates emergency affects whole banking community in
financial crisis giving rise to widespread confusion in public

· No. 2 provides situation where BSP grants loan to a bank with uncertain
financial condition but not insolvent

C. Limits

· Amount of emergency loan or advance shall not exceed 50%

total deposits and deposit substitutes of bank and is given in 2
tranches.

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

· MB by vote of 5 members may release 2nd tranche on the following

conditions that the principal stockholders shall:
 i. Furnish an undertaking to indemnify and hold harmless from suit
a conservator appointed by MB

ii. Provide acceptable security adequate to supplement the

collateral assets

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

· BSP shall dispose of such share by public bidding within 1 year.

· 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

· BSP shall collect interest on all loans and advances it extends

notwithstanding closure, receivership or liquidations
· MB shall fix interest and rediscount rates after due
consideration has been given to credit needs of the market,
composition of BSP portfolio and national monetary policy
· Interest rates shall be applied to all banks uniformly and
without discrimination
B. Endorsement

· Documents rediscounted, discounted, bought or accepted as

collateral by BSP must bear endorsement of bank

C. Repayment of Credits

· Documents rediscounted, discounted, bought or accepted as

collateral by BSP must be withdrawn on dates of maturity or upon
liquidation of obligation

· Banks shall have the right at any time to withdraw documents

presented as collateral upon payment of full debt including interests

D. Other Requirements

· MB shall provide additional conditions which borrowing institutions

must satisfy
E. Provisional Advances to the National Government

· BSP may make direct provisional advances with or without interest to

national government to finance expenditures in annual appropriations
provided that:

o It is repaid before end of 3 months, extendible for another 3

months

o Shall not exceed 20% of average annual income of borrower for

the last 3 preceding fiscal year

F. Prohibitions

· 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
X. OPEN MARKET OPERATIONS FOR
THE ACCOUNT OF BSP
Principles of Open Market Operations
➔ Open market purchases and sales of security shall
be made in accordance to primary objective of
price stability
PURCHASES AND SALES OF
GOVERNMENT SECURITIES
➔ BSP may buy and sell in open market for its account the
following:
1. Evidence of indebtedness issued directly by Government
2. Evidence of indebtedness issued by government
instrumentality fully guaranteed by Government

➔ The above must be freely negotiable and available to the

general public in denomination of thousands of pesos or
more
ISSUE AND NEGOTIATION OF BSP
OBLIGATIONS
➔ BSP may issue, place, buy and sell freely negotiable
evidence of indebtedness of BSP
➔ The issuance of such shall only be made in cases of
extraordinary movements in price levels
➔ It may be issued directly against the international
reserves of BSP or issued without any relation to asset
of BSP
➔ MB shall determine interest rates, maturities and may
denominate the obligation in gold and foreign
currencies
BSP may acquire the said evidence of indebtedness
before their maturity by:
❖ Purchase in open market
❖ Or redemption if the BSP has reserved its right to
make such redemption
➔ Such shall not be included among BSP assets and
shall be immediately retired and cancelled
(because there was discharge, maker acquired
the note he issued)
XI. COMPOSITION AND REVIEW OF
BSP PORTFOLIO
➔ At least once every month, MB shall review
portfolio of BSP for future credit policy
➔ MB shall consider if portfolio has a sufficiently large
part consists of assets with early maturities in order
to promptly contract BSP credit whenever national
monetary policy so requires
XII. BANK RESERVES
Reserve Requirement
➔ In order to control volume of money created by credit
operations, banks shall be require to maintain reserves
against their deposit liabilities
➔ MB may at its discretion require banks to maintain reserves
against funds held in trust and liabilities for deposit substitutes
➔ Required reserves shall be proportional to volume of deposit
liabilities and shall ordinarily take a form of a deposit in BSP
➔ Reserve requirement shall be applied to all banks
uniformly and without discrimination
➔ Reserves against deposit substitutes shall be
determined like reserve requirement against regular
bank deposits
➔ MB may exempt from reserve requirement such
deposits with remaining maturities of 2 years or more
and interbank borrowings
➔ Requirement to maintain bank reserves is imposed
➔ primarily to control volume of money and shall not
pay interest on reserves maintained
DEFINITION OF DEPOSIT
SUBSTITUTES
Deposit substitutes – alternative form of obtaining funds from the public through the
issuance, endorsement or acceptance of debt instruments for borrower’s own
accounts for the purpose of relending receivables

The following are some deposit substitutes:

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

Reserves against Unused Balances of Overdraft

Lines
➔ MB may establish minimum reserve requirements for
unused balance of overdraft
Increase in Reserve Requirement
➔ MB may increase reserve requirements against
existing liabilities in a gradual manner and shall not
exceed 4% in any 30 day period. Banks shall be
notified reasonably in advance
Computation of Reserves
➔ Reserve position shall be calculated daily on the
basis of the amount at the close of business for the
day
Computation of Reserves
➔ In holiday or non-banking days, the reserve
position is calculated at the close of the
business day immediately preceding such
holiday
➔ For purpose of computing reserve position,
principal office of the bank in the Philippines
and all branches are considered as single
unit
RESERVE DEFICIENCIES
➔ When reserve position is below the required minimum,
the bank shall pay:
❖ 1/10 of 1% amount of deficiency or
❖ The prevailing 91-day treasury bill rate plus 3% points
whichever is higher
➔ Banks shall permitted to offset bank deficiency with any
excess reserves which may have held during other days
of the week
➔ Banks shall be required to pay penalty only on the
average daily deficiency in the week
➔ In case of abuse, MB may deny any bank the
privilege of offsetting reserve deficiencies
➔ If bank chronically has reserve deficiency, MB may
limit or prohibit the bank from making new loans or
investments
➔ It may also require that part or all net profits be
assigned as surplus
➔ MB may modify or set aside the reserve deficiency
penalty in a period of a strike or lockout of the
bank or national emergency
INTERBANK SETTLEMENT
➔ BSP shall establish interbank clearing facilities. BSP may
charge fees for such
➔ Deposit reserves maintained by banks in the BSP shall
serve as basis for the clearing of checks and settlement
of interbank balances
➔ Any bank that incurs an overdrawing in its deposit
account in BSP shall fully cover such overdraft and pay
interest (1) at 1/10 of 1% per pay or (2) prevailing 91-
day treasury bill rate plus 3% point whichever is higher
➔ Settlement of clearing balances shall not be effect for
accounts which continues to be overdrawn for 5
consecutive days until overdrawn is paid or has
emergency loan
➔ Banks with existing overdrafts with BSP at effectivity of
NCBA may either convert such to emergency loan or
settle such immediately
Exemption from Attachment
➔ Deposits in BSP as reserve requirement shall be exempt
from attachment, garnishment of court or government
agency to satisfy claim of a party other than the
government
D. OFFICIAL DEPOSITS
Section 113. Official Deposits. — The Bangko Sentral shall be the official
depository of the Government, its political subdivisions and
instrumentalities as well as of government-owned or controlled
corporations and, as a general policy, their cash balances should be
deposited with the Bangko Sentral, with only minimum working
balances to be held by government-owned banks and such other
banks incorporated in the Philippines as the Monetary Board may
designate, subject to such rules and regulations as the Board may
prescribe: Provided, That such banks may hold deposits of the political
subdivisions and instrumentalities of the Government beyond their
minimum working balances whenever such subdivisions or
instrumentalities have outstanding loans with said banks.
E. FISCAL OPERATIONS
Section 114. Fiscal Operations. — The Bangko Sentral
shall open a general cash account for the Treasurer of
the Philippines, in which the liquid funds of the
Government shall be deposited. Transfers of funds from
this account to other accounts shall be made only upon
order of the Treasurer of the Philippines.
F. OTHER BANKS AS AGENTS OF THE BANGKO
SENTRAL

Section 115. Other Banks as Agents of the Bangko Sentral. —

In the performance of its functions as fiscal agent, the
Bangko Sentral may engage the services of other
governmentowned and controlled banks and of other
domestic banks for operations in localities at home or abroad
in which the Bangko Sentral does not have offices or
agencies adequately equipped to perform said operations:
Provided, however, That for fiscal operations in foreign
countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
G. REMUNERATION FOR SERVICES

Section 116. Remuneration for Services. — The Bangko

Sentral may charge equitable rates, commissions or fees
for services which it renders to the Government, its
political subdivisions and instrumentalities.
 XV. THE MARKETING AND
STABILIZATION OF SECURITIES
FOR THE ACCOUNT OF THE
GOVERNMENT
A. ISSUE OF GOVERNMENT OBLIGATIONS

Section 117. Issue of Government Obligations. — The issue of

securities representing obligations of the Government, its
political subdivisions or instrumentalities, may be made through
the Bangko Sentral, which may act as agent of, and for the
account of, the Government or its respective subdivisions or
instrumentality, as the case may be: Provided, however, That
the Bangko Sentral shall not guarantee the placement of said
securities, and shall not subscribe to their issue except to replace
its maturing holdings of securities with the same type as the
maturing securities.
B. METHODS OF PLACING GOVERNMENT
SECURITIES
Section 118. Methods of Placing Government Securities. —
The Bangko Sentral may place the securities to which the
preceding section (Section 117 of NCBA) refers through
direct sale to financial institutions and the public. The Bangko
Sentral shall not be a member of any stock exchange or
syndicate, but may intervene therein for the sole purpose of
regulating their operations in the placing of government
securities. The Government, or its political subdivisions or
instrumentalities, shall reimburse the Bangko Sentral for the
expenses incurred in the placing of the aforesaid securities.
C. SERVICING AND REDEMPTION OF THE PUBLIC
DEBT
Section 119. Servicing and Redemption of the Public
Debt. — The servicing and redemption of the public
debt shall also be effected through the Bangko Sentral.
D. THE SECURITIES STABILIZATION FUND

Section 120. The Securities Stabilization Fund. — There shall be established a

"Securities Stabilization Fund" which shall be administered by the Bangko
Sentral for the account of the Government. The operations of the Securities
Stabilization Fund shall consist of purchases and sales, in the open market, of
bonds and other evidences of indebtedness issued or fully guaranteed by the
Government. The purpose of these operations shall be to increase the liquidity
and stabilize the value of said securities in order thereby to promote investment
in government obligations. The Monetary Board shall use the resources of the
Fund to prevent, or moderate, sharp fluctuations in the quotations of said
government obligations, but shall not endeavor to alter movements of the
market resulting from basic changes in the pattern or level of interest rates. The
Monetary Board shall issue such regulations as may be necessary to implement
the provisions of this section.
E. RESOURCES OF THE SECURITIES STABILIZATION
FUND
Section 121. Resources of the Securities Stabilization
Fund. — Subject to Section 132 of this Act, the resources
of the Securities Stabilization Fund shall come from the
balance of the fund as held by the Central Bank under
Republic Act No. 265 as of the effective date of this Act.
F. PROFITS AND LOSSES OF THE FUND

Section 122. Profits and Losses of the Fund. — The

Securities Stabilization Fund shall retain net profits which
it may make on its operations, regardless of whether
said profits arise from capital gains or from interest
earnings. The Fund shall correspondingly bear any net
losses which it may incur.
XVI. Functions as Financial Adviser
FINANCIAL ADVISER ON OFFICIAL
CREDIT OPERATIONS

1.Undertaking Credit Operation Abroad

•through Secretary of Finance, shall request the opinion of MB
Basis of MB:
1. gold and foreign exchange resources of the nation and
2. effects of such operation in balance of payments and on monetary
aggregates
2. Borrowing Within The Philippines
•prior opinion of MB should also be requested
FINANCIAL ADVISER ON OFFICIAL
CREDIT OPERATIONS

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)

The deputy governor shall be an ex officio member of NEDA

•assure effective coordination between economic, financial and fiscal policies of
government
XVII. Privileges
TAX EXEMPTIONS
1.From all national, provincial, municipal and city taxes
Requisite: approval of NCBA
Application:
1. all property of the BSP
2. contracts and deed related to conduct of business
3. NOT APPLY to those payable by persons merely doing business to BSP
2. Foreign loans: payment is assumed by BSP
EXEMPTION FROM CUSTOMS DUTIES
1.Importation and exportation of BSP of notes, coins and other metals
2. Importation of all equipment needed for bank notes and coin production
APPLICABILITY OF CIVIL SERVICE LAW
1.Appointment shall be in accordance with CSL
•except policy determining, primarily confidential or highly technical in nature
2.No qualification requirement for position shall be imposed other than those
set by MB
3.MB or Governor may, without need of further obtaining approval of
government agency, appoint personnel in BSP
 XVIII. Transitory
Provisions of NCBA
1. Phase-out of Fiscal Agency Functions
•Within 3 years but no longer than 5 years transfer fiscal
agency functions to DOF

2. Phase out of Regulatory Powers over Finance Corporations

• BSP shall within 5 years phase out its regulatory powers
over finance companies without quasi-banking and transfer it to
SEC
3. Implementing Details
A. BSP shall be made operational by these acts:
(1)President appoint members of MB within 60 days and
(2) transfer of assets and liabilities of CB to BSP within 90 days

B. All incumbent personnel of CB shall continue to exercise

duties in BSP if they are necessary
4. Transfer of Asset and Liabilities
Upon effectivity of Act, (1) 3 members of MB including
Governor, (2) Sec. of Finance, (3) Sec. of DBM and (4)
Chairmen of Committee on Banks of Congress shall determine
assets and liabilities of CB to be transferred to BSP
5. Mandate to Organize
•BSP shall be organized irrespective of RA 7430 (Optimum
Utilization of Personnel Act)
• There shall be no preferential or priority right to be given to
any personnel for appointment in new staffing pattern
6. Separation Benefits
• MB shall authorize separation benefits in addition to all gratuities
under the law to those separated in service due to reorganization
Repealing Clause: RA 265 and PD 1792 are repealed 7.
7.Transfer of Powers
• All powers vested in CB not inconsistent with NCBA is deemed
transferred to BSP
8. Suspense Accounts
•Sec 46 - Monetary Adjustment Account and Exchange
Stabilization Adjustment Account are repealed.

•Revaluation of International Reserve Account shall continue

for the account of the same entity