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• Central banking


  The function and operations of a central bank within a country's financial and monetary system
• Central banks


  • Independent institutions established by governments to oversee monetary policy, regulate financial institutions, manage currency issuance, maintain financial stability, and support economic objectives
• Monetary Policy


  1. Central banks formulate and implement monetary policy to achieve macroeconomic objectives such as price stability, full employment, and economic growth

  2. They use tools like interest rate adjustments, open market operations, reserve requirements, and forward guidance to influence money supply, credit conditions, and economic activity
• Currency Issuance and Management

  • Central banks have the authority to issue and manage the country's currency
  • They ensure the availability of physical currency (banknotes and coins) in circulation, maintain currency integrity and security, and manage currency distribution through banks and cash management systems
• Banking Regulation and Supervision


  • Central banks regulate and supervise financial institutions such as banks, credit unions, and other financial intermediaries to ensure their safety, soundness, and compliance with regulations
  • They establish prudential standards, conduct banking examinations, oversee risk management practices, and address financial stability concerns
• Lender of Last Resort

  • Central banks act as lenders of last resort during financial crises or liquidity shortages
  • They provide emergency liquidity support to banks and financial institutions facing funding difficulties to maintain financial stability and prevent systemic risks
• Clearing and Settlement Systems

  • Central banks operate and oversee payment and settlement systems that facilitate the transfer of funds and securities between financial institutions
  • They ensure the smooth functioning, efficiency, and safety of payment systems to support economic activities and financial transactions
• Foreign Exchange Operations


  • Central banks conduct foreign exchange operations to manage foreign exchange reserves, stabilize exchange rates, intervene in currency markets, and address balance of payments issues
  • They may engage in buying or selling foreign currencies to influence exchange rate movements and maintain currency stability
• Financial Stability and Crisis Management

  • Central banks monitor financial markets, assess systemic risks, and take proactive measures to maintain financial stability
  • They may implement macroprudential policies, conduct stress tests, provide market interventions, and collaborate with other regulatory authorities during financial crises or periods of market turbulence
• Research and Economic Analysis

  • Central banks conduct economic research, analysis, and forecasting to understand economic trends, assess policy effectiveness, and provide guidance on monetary policy decisions
  • They publish economic reports, data, and indicators to inform stakeholders and the public
• Central banking plays a vital role in managing monetary and financial systems, promoting economic stability, supporting sustainable growth, and safeguarding the integrity of the financial sector
• Central banks operate independently to maintain credibility, transparency, and accountability in their policy decisions and actions
• Exchange rates


  Play a crucial role in the global economy and financial markets, impacting various aspects of international trade, investment, financial flows, and economic stability
• International Trade


  • Exchange rates determine the relative prices of goods and services between countries
  • Fluctuations in exchange rates can affect the competitiveness of exports and imports, influencing trade volumes, trade balances, and trade patterns
  • A weaker currency can make exports cheaper and more competitive in foreign markets, potentially boosting export revenues and economic growth
  • Conversely, a stronger currency can make imports cheaper but may reduce export competitiveness
• Balance of Payments


  • Exchange rates play a role in determining a country's balance of payments, which includes the trade balance (exports minus imports), capital flows (investment income, foreign direct investment, portfolio flows), and current account balance (trade balance plus net income from abroad)
  • Changes in exchange rates can affect the current account balance by impacting trade flows and capital flows
  • A depreciating currency may improve the trade balance but could also increase external debt servicing costs for countries with foreign currency-denominated debt
• Investment and Capital Flows

  • Exchange rates influence investment decisions and capital flows between countries
  • Investors consider exchange rate movements when making investment decisions in foreign assets, stocks, bonds, real estate, and other financial instruments
  • Exchange rate fluctuations can affect investment returns, foreign direct investment (FDI), portfolio investment flows, cross-border mergers and acquisitions, and capital flight risks
  • Investors may seek opportunities in countries with favorable exchange rate trends or hedging strategies to manage currency risks
• Monetary Policy and Inflation

  • Central banks use exchange rates as a policy tool to achieve monetary policy objectives such as price stability, inflation control, and economic growth
  • Exchange rate interventions, interest rate decisions, and foreign exchange market operations can influence inflationary pressures and import/export dynamics
  • Exchange rate movements impact import prices, inflation rates, purchasing power, and consumer prices
  • A depreciating currency can lead to higher import prices and imported inflation, while an appreciating currency may lower import costs and inflationary pressures
• Financial Market Dynamics


  • Exchange rates are key determinants of financial market movements, including currency markets, stock markets, bond markets, and commodity markets
  • Exchange rate fluctuations can affect asset prices, risk perceptions, investor sentiment, and market volatility
  • Currency traders, speculators, hedge funds, multinational corporations, and central banks actively participate in foreign exchange markets to capitalize on exchange rate movements, manage currency risks, and optimize investment returns
• Economic Competitiveness and Growth


  • Exchange rates impact a country's economic competitiveness, export-oriented industries, tourism sector, and foreign direct investment attractiveness
  • Competitive exchange rates can support export-driven growth, job creation, and industrial competitiveness
  • Exchange rate stability and predictability are important for businesses, investors, and policymakers to make informed decisions, plan investments, manage risks, and foster economic stability and growth
• Understanding exchange rate movements, drivers, and implications is essential for businesses, governments, investors, and policymakers to navigate global markets, manage risks, and pursue sustainable economic development
• Government debt


  The total amount of money that a government owes to creditors, incurred through borrowing from various sources to finance government expenditures that exceed tax revenues
• Purpose of Government Debt

  • Governments borrow money through issuing bonds, Treasury bills, and other securities to fund public spending on infrastructure projects, social programs, defense, healthcare, education, and other governmental activities
  • Debt is often used when tax revenues are insufficient to cover government expenditures
• Types of Government Debt

  • Internal Debt: Debt owed to domestic creditors, such as individuals, banks, pension funds, and institutions within the country
  • External Debt: Debt owed to foreign creditors, including foreign governments, international organizations like the IMF (International Monetary Fund) and World Bank, and private investors outside the country
• Implications of Government Debt

  • Interest Payments: Governments must pay interest on their debt, and these interest payments can consume a significant portion of the budget, especially if debt levels are high
  • Debt Sustainability: High levels of government debt can raise concerns about debt sustainability, as excessive borrowing may lead to difficulties in servicing the debt and meeting future repayment obligations
  • Credit Ratings: Government debt levels can affect a country's credit rating, which in turn influences borrowing costs
  • Economic Impact: Excessive government debt can crowd out private investment, increase borrowing costs for businesses and individuals, and potentially lead to inflationary pressures if financed through money creation
• Debt-to-GDP Ratio


  • A common measure of government debt sustainability that compares the total debt to the country's gross domestic product (GDP)
  • A high debt-to-GDP ratio may indicate that the country's debt burden is significant relative to its economic output
• Governments employ various strategies to manage and reduce their debt levels, including fiscal discipline, budgetary reforms, economic growth initiatives, debt restructuring, and debt rescheduling agreements with creditors
• Government debt remains a complex and significant aspect of national economies, with implications for fiscal policy, economic stability, and financial markets
• Importance of Government Debt

  • Financing Government Expenditures: Government debt allows governments to finance public expenditures that exceed tax revenues, including funding for infrastructure projects, social welfare programs, education, healthcare, defense, and other essential services
  • Stabilizing Economic Cycles: During economic downturns or recessions, government debt enables countercyclical fiscal policy, allowing governments to increase spending, provide stimulus packages, and implement tax cuts to support aggregate demand, boost consumption and investment, and mitigate the impact of economic contractions
  • Investment in Future Growth: Government debt can be used to finance investments in infrastructure, technology, innovation, and human capital development, contributing to long-term economic growth, productivity gains, job creation, and enhanced competitiveness
  • Monetary Policy Coordination: Government debt issuance and management are coordinated with monetary policy to achieve macroeconomic objectives, providing liquidity to financial markets, influencing interest rates, and supporting credit availability
  • Funding Public Goods and Services: Government debt plays a crucial role in funding public goods and services that benefit society as a whole, such as investments in healthcare infrastructure, environmental protection, public transportation, law enforcement, and disaster response
  • Diversifying Funding Sources: Government debt provides governments with a diversified source of funding beyond tax revenues, reducing dependence on any single revenue stream and enhancing financial flexibility
• While government debt is a vital tool for fiscal policy and economic management, it is essential to manage debt levels prudently to ensure sustainability, debt servicing capacity, and long-term fiscal health
• Effective debt management strategies, transparency, accountability, and fiscal discipline are key elements in maximizing the benefits of government debt while minimizing risks and vulnerabilities
• Types of Government Debt

  • Maturity-based Classification: Short-term Debt (e.g., Treasury bills, short-term notes), Long-term Debt (e.g., government bonds, treasury notes, long-term loans)
  • Issuer-based Classification: Domestic Debt (denominated in domestic currency), External Debt (denominated in foreign currencies)
  • Currency-based Classification: Local Currency Debt, Foreign Currency Debt
  • Indexed Debt: Nominal Debt (fixed nominal values, interest rates, and repayment terms), Indexed Debt (linked to an inflation index or a specified benchmark)
  • Debt Instruments: Government Bonds, Treasury Bills (T-bills), Treasury Notes, Government Loans
• BSP


  Bangko Sentral ng Pilipinas, the central bank of the Republic of the Philippines, established on July 3, 1993 pursuant to the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993
• Original name of BSP


  Central Bank of the Philippines
• History of BSP


  1. 1900 - Act No.52 passed by the First Philippines Commission placing all banks under the Bureau of Treasury

  2. Feb 1929 - The Bureau of Banking under the Department of Finance took over the task of banking supervision

  3. 1939 - A bill establishing a Central Bank was drafted by Secretary of Finance Manuel Roxas and approved by the Philippine Legislature, but returned by the US Government without action to the Common Wealth Government

  4. 1946 - A Joint Philippines American Finance Commission was created to study the Philippine currency and banking system

  5. August 1947 - A Central Bank Council was reformed to review the Commission report and prepare the necessary legislation for implementation

  6. Feb 1948 - President Manuel Roxas submitted to Congress a bill establishing the Central Bank of the Philippines

  7. 15 June 1948 - The bill was signed into law as Republic Act No. 265 "The Central Bank Act" by President Elpidio Quirino

  8. Nov 1972 - RA No. 265 was amended by the Presidential Decree No 72 to make the CBP more responsive to changing economic conditions

  9. Jan 1981 - Further amendments were made with issuance of PD No 1771 to improve and strengthen the financial system

  10. 1986 - Executive Order No. 16 amended the Monetary Board membership to promote greater harmony and coordination of government monetary and financial policy

  11. 03 July 1993 - Republic Act No 7653 was passed establishing the Bangko Sentral ng Pilipinas, replacing CBP as the country's central monetary authority

  12. 14 Feb 2019 - Republic Act No 11211 was passed amending RA No. 7653, bolstering the capability of the BSP to safeguard price stability and financial system stability
• BSP Seal
• Monetary Board


  • Ralph G. Recto
  • Benjamin E. Diokno
  • V. Bruce J. Tolentino
  • Romeo L. Bernardo
  • Rosalia V. De Leon
  • Anita Linda R. Aquino
• Monetary Board and Governor


  • Eli M. Remolona, Jr. (Chairman of the Monetary Board and Governor)
  • V. Bruce J. Tolentino (Deputy Governor)
  • Chuchi G. Fonacier (Deputy Governor)
  • Mamerto E. Tangonan (Deputy Governor)
  • Francisco G. Dakila, Jr. (Deputy Governor)
  • Bernadette Romulo-Puyat (Deputy Governor)
• Monetary Policy


  The process whereby the monetary authority attempts to achieve a desired set of economic goals by controlling either the money supply, the cost and availability of credit, or the allocation of credit to its various uses
• Monetary Policy Tools


  • Open Market Operations
  • Reserve Requirements
  • Interest Rate Policy
  • Floating Interest Rate
  • Rediscounting
  • Swap Facility
  • Moral Suasion or Moral Influence
• Open Market Operations


  Involve the buy and sale of government securities