I. The Unit of Monetary Value The Peso
• Peso - unit of monetary value in the Philippines (P sign)
• Peso divided into 100 equal parts called centavo (c sign)
• All monetary obligation shall be settled in Philippine currency in legal tender
• Parties may agree that obligation shall be settled in other currency
Definition of Currency
• Currency – 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
• 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 the 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 authority to investigate, arrest and conduct searches to maintain integrity of currency 4. Violation shall have imprisonment of 5-10 years
unless RPC gives greater penalty Related Crimes under RPC
1. Art. 163 – Making and importing and uttering false coins
2. Art. 164 – Mutilation of coins
3. Art. 165 – Selling of false or mutilated coins without connivance
4. Art. 166 – Forging treasure notes or other documents payable to bearer
5. Art. 167 counterfeiting, importing or uttering instruments not payable to bearer
6. Art. 168 - Illegal possession and use of false treasury notes
7. Art. 169 – How forgery is committed Exception to territoriality of penal laws
• Art. 2 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 Liability for notes and coins
• Notes and coins issued by the 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
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
• BSP Circ. 537 of 2006 – maximum amount of coins to be considered as legal tender
o 1,5,10 peso coins – 1k o 1,5,10,25 centavos – 100
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
• 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 PN, 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
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
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
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
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 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
1. MB shall endeavour to control any expansion or contract of monetary aggregates prejudicial to price stability
Power to define terms
2. MB shall define monetary aggregates, credit and prices and made public such definitions
Action when abnormal movements occur in monetary aggregates, credit and prices
• When such occurs that endanger stability of economy, MB shall:
1. Take remedial measures
2. Submit to Prresident and Congress of report containing the (1) cause, (2) extend of change and (3) measures taken by MB
• 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
• The monetary board shall submit reports and shall state whether these changes is a threat to stability
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
• MB shall continue to submit periodic report to President and Congress until monetary aggregates, credit and prices disturbances disappeared or controlled
IV. International Monetary Stabilization International Monetary Stabilization
• BSP shall exercise its powers under the NCBA to preserve the international value of peso and maintain its convertibility
International Reserves
• International reserves – must be maintained adequately to meet foreseeable net demands for foreign currencies
• Adequacy of international reserves – MB shall be guided by prospective receipts and payments of foreign exchange
• MB shall give special attention to volume and maturity of the following:
o Liability of BSP in foreign currency o Foreign exchange assets and liabilities of
other banks and all other persons Composition of International Reserves
• International reserve shall include but not limited to:
• Gold
• Assets in foreign currencies
• Assets in foreign currencies include (1) documents of international transfer of funds, (2) demand and time deposits of banks abroad and (3) foreign government securities and notes
• MB shall hold the FOREX resource of BSP in freely convertible currencies
• MB shall issue regulations that FOREX assets must meet
• BSP shall be free to convert any asset in international reserves into other assets
Action when International Stability of Peso is Threatened
• Whenever:
1. International reserve falls to a level inadequate to meet prospective net demands for foreign currencies
2. International reserve appears to be imminent to fall on such level
3. International reserve is falling as a result of remittance abroad
• The MB shall:
1. Take remedial actions
2. Submit to the President and Congress a report including:
Nature and cause
Remedial measures taken
Monetary, fiscal and administrative measures
Character and extend of cooperation required
3. If resultant actions fails, the MB shall propose to the President with notice to Congress of additional action to restore equilibrium
4. MB shall submit periodic reports to President and Congress until threat has disappeared
Means of Action
• In order to achieve the primary objective of price stability, MB shall rely on moral influence and powers granted by NCBA
V. Operations in Gold and FOREX Purchases and sales of gold
• BSP may buy and sell gold
• It shall be made in national currency at prevailing international market price
Purchase and sales of FOREX
• BSP may buy and sell foreign notes, coins and documents. They can also engage in future exchange operations
• BSP shall engaged with FOREX transactions with the following: (BIG-FO)
1. Baking institutions operating in the Philippines
2. International financial institutions 3. Government
4. Foreign governments
5. Other entities authorized by MB
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
• In order to maintain convertibility of peso, BSP may buy those offered and sell any quantity demanded provided that FOREX is freely convertible into gold or US dollars
• This requirement shall not apply to demand for foreign notes and coins
• BSP shall effect its exchange transactions at the rates determined by Sec. 74
Foreign Asset Position of BSP
• BSP shall maintain a net positive foreign asset position so that gross FOREX assets will always exceed gross foreign liabilities
• If FOREX liabilities exceed twice the FOREX assets, BSP shall within 60 days, submit report to Congress stating origin of liabilities and manner which it will be paid
Emergency Restriction on Exchange Operations
• In order to:
1. Achieve primary objective (price stability) 2. Protect international reserves
3. And in time of national emergency, give MB time to takes constructive measures to forestall or combat crisis
• The MB with concurrency of 5 members and with approval of President may:
1. Temporary suspend or restrict sale of exchange
2. Subject all transactions in gold and FOREX to license
3. Require FOREX obtained by anyone be delivered to BSP at effective exchange rate. Foreign currency deposits RA 6426 (Foreign Currency Deposit System) shall be exempted
Acquisition of Inconvertible Currencies
• BSP shall avoid acquisition of such currencies
• It may require such currencies in an amount exceeding the minimum balance to cover current demands for said currency only when acquisition of such is considered of national interest
Exchange Rates (Sec. 73)
• MB shall determine exchange rate policy of the country
• MB shall determine rates at which BSP shall buy and sell spot exchange and establish deviation limits for effective exchange rates
• BSP shall not collect any additional commissions other than actual telegraphic costs
• MB shall similarly determine rates for other types of FOREX transactions including sales of foreign notes and coins
• The margins between effective exchange rates and rates established may not exceed the
corresponding margins for spot exchange
transactions more than additional costs involved in each type of transactions
Operations with Foreign Entities
• MB may authorize BSP to grant and receive loans from foreign banks and may engage in operations with such entities for national interest
• BSP may also act as agent of such entities
• BSP may pledge gold or other assets as security against loans it received
VI. Regulations of FOREX Operations FOREX Holdings of Banks
• BSP may at all times have FOREX resources sufficient to enable it to maintain international stability and covert ability
• MB may require banks to sell to BSP part of their surplus holdings of FOREX to achieve this. Such transfers may be required to all foreign currencies
• MB may determine the net assets and liabilities of banks
• To determine such, the following shall be taken into consideration: (1) bank’s networth,
outstanding liabilities or other financial or performance ratios
• Such determination shall be applied to all banks uniformly and without discrimination
Requirement of Balanced Currency Position
• MB may require the banks to maintain balance position of assets and liabilities in peso or other
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
currency. Banks shall be granted reasonable time for such
• Power above shall be exercised only under special circumstance and applied to all banks uniformly and without discrimination
Regulation of Non-Spot Exchange Transactions
• To restrain banks from taking speculative positions with respect to future fluctuation in FOREX rates, MB shall issue regulations for sales in non-spot exchange
Other exchange profits and losses
• Banks shall bear risks of non-compliance with terms of FOREX documents they buy and sell
• They shall also bear other risks including exchange risk not assumed by BSP Information on Exchange Operations
• Banks shall report to BSP the volume and
composition of the purchases and sales of gold and FOREX each day
• MB may also require other persons to report such purchases and sales of gold and FOREX.
Accuracy of declaration may be verified by BSP VII. Loans to Banking and Other Financial Institutions Guiding Principles
• The rediscount, discount, loans and advances shall be used to influence volume credit consistent with object price stability
Authorized Types of Credit Operations
• BSP may perform the following credit operations in the Philippines: (CPOA)
1. Commercial credits – credits where maturities are not more than 180 days and resulting from:
1. Purchase and sale of readily saleable goods, exportation, importation and their transportation (PESTI)
2. 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
1. 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 non0inflationary sources
4. Advances – grant advances against the following kinds of collateral for fixed periods which shall not exceed 180 days, except #4: (GSC-CUNN)
1. Gold
2. Securities representing obligations of BSP
3. Credit instruments in no. 1 4. Credit instrument in no. 2 for
period not exceed 360 days 5. Utilized portions of advances in
current amount covered by regular overdraft
6. Negotiable treasury bills maturity within 3 years
7. 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
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 Nature of Emergency Loans and Advances
• Emergency loan or advance – credit facility intended to assist a bank experiencing serious liquidity problems from causes beyond its control
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
• Grant of such is discretionary on MB and is a temporary remedial measure. It must also be fully-secured
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 shall not expand the bank’s total volume of loans or investments 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
Limits
• Amount of emergency loan or advance shall not exceed 50% total deposits and deposit substitutes of bank and is given in 2 tranches
First Tranche
• Amount of 1st tranche shall be limited to 25% of total deposit and deposit substitute of bank and secured by government securities
• Amount of first tranche may exceed 25% if it is adequately secured by government securities and unencumbered first class collaterals
• 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
Second Tranche
• MB by vote of 5 members may release 2nd tranche on the following conditions that the principal stockholders shall:
1. Furnish an undertaking to indemnify and hold harmless from suit a conservator appointed by MB
2. Provide acceptable security adequate to supplement the collateral assets Shares Collateral
• Prohibition in 128 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
Overdraft
• Overdraft shall be eliminated within a period of 5 consecutive banking days
IX. Credit Terms 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 Endorsement
• Documents rediscounted, discounted, bought or accepted as collateral by BSP must bear endorsement of bank
Repayment of Credits
• Documents rediscounted, discounted, bought or accepted as collateral by BSP must be withdrawn
AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.
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
Other Requirements
• MB shall provide additional conditions which borrowing institutions must satisfy
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
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
• It may be issued directly against the international