Name: Oguimas, Shanova J.

Section: BSBA FM III-9

Prof.: Mrs. Teresita Fernandez
Subject: Monetary Policy and Central Banking
Date: September 19, 2021

MODULE 2: THE PHILIPPINE FINANCIAL SYSTEM

PRE – ASSESSMENT:
Direction. Read the questions carefully. Write your answer on the space provided.

1. After learning the concept of the Philippine financial system, what are the
elements that may have an impact on the Philippine financial system?

 Lenders and Borrowers, Financial Intermediaries, Financial

Instruments, Financial Markets, Money Creation, and Price Discovery

2. FINANCIAL INTERMEDIARIES An element of the financial system that

interposes themselves between the lenders and borrowers, and earn a margin
for the benefits of intermediation (including lower risk for the lender).

3. FINANCIAL INSTRUMENTS These instruments may be marketable (e.g.

treasury bills) or non-marketable (e.g. retirement annuities).

4. Provide 3 keywords that come to your mind when you encounter the word
Central Banking. Briefly describe each.

 Lender of last resort – Central bank is the lender of last resort, for it can
give cash to the member banks to strengthen their cash reserves position
by rediscounting first class bills in case there is a crisis or panic which
develops into ‘run’ on banks or when there is a seasonal strain.

 Monetary Policy – is a set of actions that can be undertaken by a nation’s

central bank to control the overall money supply and achieve sustainable
economic growth.

 Bank Regulation - is a form of government regulation which subjects

banks to certain requirements, restrictions and guidelines, designed to
create market transparency between banking institutions and the
individuals and corporations with whom they conduct business, among
other things.
 5. Provide 3 keywords that come to your mind when you encounter the word
BangkoSentral ng Pilipinas. Briefly describe each.

 Price Stability – refers to a condition of low and stable inflation. By keeping

price stable, the BSP helps ensure strong and sustainable economic growth
and better living standards.

 Financial Stability – is to enhance the resilience of the financial system, in

its totality and in its components, from shocks. It is a condition in which an
economy’s mechanisms for pricing, allocating, and managing financial risks
re functioning well enough to contribute to the performance of the economy.

 Payments and Settlements System – they provide the channels through

which funds are transferred among banks and other institutions to discharge
payment obligations arising from economic and financial transactions across
the entire economy.

EVALUATION:
Direction. Read the questions carefully. Answer the following questions in a letter
size bond paper. Describe briefly the correlation between the elements of the
financial system.
Provide a key difference between Central Banking and BSP in terms of:
a. Broad Policy Objectives - The primary objective of the Bangko Sentral is to
maintain price stability conducive to a balanced and sustainable growth of the economy
and employment. It shall also promote and maintain monetary stability and the
convertibility of the peso. While the Central Banking main objectives is to maintain
price and economic stability.
b. Functions - The central bank's main functions are to set the base rate, control
the money supply through open market operations, set private banks reserve
requirements, and control the nations foreign exchange reserves. However, under the
New Central Bank Act, the BSP performs functions such as liquidity management,
currency issue, lender of last resort, financial supervision, management of foreign
currency reserves, and determination of exchange rate policy.
c. Organizational Structure – The BSP organizational structure is composed of
monetary board, a governor, four functional sectors which includes: monetary,
economics sector, financial supervision sector, corporate services sector and payment
& currency management sector.
  However, most central banks are governed by a board consisting of its member
banks. The country’s chief elected official appoints the director. The national
legislative body approves him or her. That keeps the central bank aligned with
the nation’s long-term policy goals. At the same time, it’s free of political influence
in its day-to-day operations. The Bank of England first established that model.

d. Scope of Control -

Bangko Sentral ng Pilipinas provides policy directions in the areas of money, banking
and credit and exists to supervise operations of banks and exercises regulatory powers
over non-bank financial institutions. While, a central bank is an independent national
authority that conducts monetary policy, regulates banks, and provides financial
services including economic research. Its goals are to stabilize the nation's currency,
keep unemployment low, and prevent inflation.

REINFORCEMENT
In Word file, please answer the following to be uploaded in our Google Drive:

1. Write in chronological order the evolution of Central Banking

- The first prototypes for modern central banks were the Bank of England
and the Swedish Riksbank, which date back to the 17 th century. The Bank
of England was the first to acknowledge the role of lender of last resort.
Other early central banks, notably Napoleon’s Bank of France and
Germany’s Reichsbank, were established to finance expensive
government military operations.
- “free-banking period” was established between 1837 and 1863.
- 1790 : The Currency Crisis
- 1800 : The Bank of Finance
- The 18th – 19th Centuries : evolved slowly
- The 19th century : established in European Countries
- The 20th century : established in Africa and Asia
- The People’ Bank of China (1979) : the most recent bank model
- Naming of Central Bank
- ‘ Bank of Country ‘ ( normally used, but Bank of India)
- ‘ Central Bank of Country ‘ ( except Central Bank of India )
- ‘ Reserve Bank of Country ‘
2. Write in chronological order the evolution of BangkoSentral ng Pilipinas

 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.
 February 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 Philippine Legislature. 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.
 August 1947 - A Central Bank Council was formed to review the Commission’s
report and prepare the necessary legislation for implementation.
 February 1948 – President Manuel Roxas submitted to Congress a bill
“Establishing the Central Bank of the Philippines, defining its powers 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
Bank 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 - RA 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, the 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 strengthen 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 government monetary and fiscal
policies.
 3 July 1993 - Republic Act No. 7653 was passed establishing the Bangko
Sentral ng Pilipinas (BSP), replacing CBP as the country's central monetary
authority.
 14 February 2019 - Republic Act No. 11211 was passed amending RA No.
7653. The charter amendments bolster the capability of the BSP to safeguard
price stability and financial system stability.