ae ' paRT : REPUBLIC ACT NO. CHAPTER Vi anne a BA -NDED BY t ar 8 _ whenever the cost of Ii wers percent (10%), in Relation sae increases by more than ter ang corresponding month of th level existin, erp e 9 at th Preceding year, end of the itive guide the Bc crccec een cece ialend automat the reports mentioned in Tae retonetery Board ei re nent section, ani Meats we cnc ea thcs a : fiving represent a threat to th Mean secsthncn | ‘The Monetary Board shall cor ti | the President of the Philippines and Soro usina ke csaie that the price disturbances jist to Congress until it considers Bes urbe /e disappeared or have been Domestic Monetary Stabilization The Bangko Sentral uses the inflation targeting framework as its bale proach to monetary policy. focusing mainly on achieving price stability as the titimate objective of monetary policy. In its review and formulation of monetary policy, Bangko Sentral evaluates and assesses a ‘comprehensive set of indicators fuch as monetary aggregates or liquid, domestic demand, supply-side factors, wages, interest rates, exchange rate, financial markets, and extemal economic development.” "Abnormal Movements Whenever abnormal movements in the privet endanger the stability of the Philippine economy or important sectors thereof, the Monetary Board shell take | femodial measures, submit dotailed repor's to the President and Congress, as well fe make such reports public when there is an! 4. _ Increase in the cost of living index by more than 10%, in relation to the of the preceding year Of level at the end of the corresponding month though the above 2, Occurrence of any other cireumstance, even quantitative guideline has hot been reached, which in the judgment of the Monetary Board would require the submission of the said reports. _ The detailed report shall include, a5 @ minimum, a description and analysis | of: (1) the causes of i rise or fall of prices: (2) the extent to which: ie changes a prices have been reflected in changes inthe jevel of domestic ‘outp ha ou = wages, and economic ‘activity in generals ‘and the nature and significa y b orgeting (orc 2020) SPS svoww bsp gow phvwedia and —— ‘Bangko Sentral, Primer on Inltion arg sen ic mmm en 7 Bangko Sentral Position Paper. S zr, 17econg..comt 7 Currencies 39 (Sept 6, 2018) ~ eeSYS annine LANs OF THE PHIUPPINES ANNOTATED 106 taken, and th, Monetary Board has. E such changes; and (3) the messuret ino rio eae oe ‘or admini ‘measures it recom other monetary, fiscal, Diseigeare sede caiaret ‘accountability, in addition Content wth we Son roqufed under Sections 39 and 40 of The Now Cantal dank At. Baro Senta eo publics he Nip ae For Report and the Hg ot de regular seminars and conferences involving Policy. The Bangko Sentral a rs and cor fhe decision of monetary developments and policy issues: inflation target, the Bangko Bangko Sentral fails to achieve the inflation Senta Corel oss (Open Letter to the President explaining the reasons ‘why actual inflation did not fall within the target, along with the steps to be taken to bring inflation toward the target. Moral Suasion The New Central Bank Act SECTION 68. Means of Action. — In order to achieve the primary objective of price stability, the Monetary Board shalll rely on its ‘moral influence and the powers granted to it under this Act for the management of monetary aggregates. Solegen Moral suasion is the influence that a central bank exercises to induce or Camince barks io cont operations ina manner ak Ware can ea spainment of monetary goals, but that might not be supportive Of, or might even a porn Fee ate bens, acti inthe short-tun. An intangible iy policy, moral suasion is nor bya central bank when itis felt that market : mally employed the pible hireseen ea aoe mechanisms cannot take full account of dialogues with bank TRERIMER (ast vitod Now 2022) ageing (March 2020) nine , htps ew wa eal (ast visited Noy, 2022), 'SP-90v.ph/Media_and_or he en ble ed tof lar icy ofly icy: cely icy PART I: REPUBLIC AC TN 10. 7653, AS AMENDED BY REPUBLIC A \CTNO. 11241 CHAPTES RVI: BANGKO SENTRA \L OPERATIONS. = Gold Operations ‘The New Cent tral Bank A SECTION 69. Purchas i ‘urchases and Sales of Gold. — The Bangk L. ingko Sentral may buy and sell gold in am ee eens ert cnny eee form, subject to such regulations ae The purchases te ee ie eer et pee authorized by this section shall market price as determined by the Woueieentt oa Participation of Bangko Sentral in Gold Trading ‘The Bangko Sentral actively i _Th participates: phiipe economy and to icrees the aes ao ate mm avgko Sentral holds gold as pat ofits GIR are 2s flows: se 4. Gold is an effective diversifer of the assets of central bank; 2, Gold provides more. senurly than most other assets because it eofonsidared a real asset and is not an obigation of any particular government or entity: 3, _Goldisconsidereda sgafe-haven* investment, which retalnsorinereaso$ its value under a range of economic ‘and market environments; 4, Gold is preferred by investors when inflation and inftation expectations are high as gold is considered ‘ahedge against accelerating prices: and 5, Philippines is 2 significant producer of gold Gold by Bangko Sentral through its: Under the Gold Buying Progtr angko Sentral purchases gd 2 tral purchases refined ‘gold in Philippine Pes?s # The Ba iy the London Bulion Market buying stations. 8 1 gold buying price set i interna ren-USD ‘Mrrange rate Set Y Bangko Sentral. Purchase Of | at the prevailins ‘association’and prevaling ining Act of 1294 roaures Bangi itive wit The People's SmalNES ANNOTATED oF THE PHILIPP! BANKING LAWS simple implements ay manual labor using simple i ne . which rly heavy 0° Te vy mining equipment: ‘mining activities, ‘explosive’ a eA Foo authorized to purchase, G04 TOM Compariog 0 Sen The Bera at inves erates onsible Gold Sourcing Policy ty De Bere Sante att els complies with the requirements ang ensure that he source #1 Srdon Bullion Market Association and) applicable laws, standards set ot Oy ree imate goal of the policy Is fo ensure sustainable ee mF pucing close and long-lasting relationships with gots. gold supply oro les and relevant stakeholders based on trust and mtu 7 Oh ngho Sentral shall BUY ts gold only from known roar ereas that have not used gold to finance the following: (1) Systemic or ijeepread human rights abuses; 2) director indirect support 10 legitimate non. of public or private security forces; (3) bribery and fraudulent Sees sana ef ho rig of gold: (4) actviles that result in non-payment of taxes, fees, and royalties due to government related to mineral extraction, trade, and export, (5) money laundering or terrorism financing; and (6) contribution to conflict. The Bangko Sentral shall conduct gold transactions with small-scale miners, gold-panners, accredited traders andlor sellers, and large-scale mining ‘companies that comply with Bangko Sentrars Responsible Gold Sourcing Policy Tax Exemption of Sale of Gold to Bangko Sentral Allsale of gold to Bangko Sentral are VAT-exempt=" In addition, the following transactions are exempt from income and excise taxes: 1. Sale of gold to Bangko Sentral by registered small-scale miners and accredited traders; and S 2. Sale of gold by registered small-scale min eventual sale fo Bangko Sentral nn reat’ Haders, or The law presumes that all gold sold to Bangko Sentral by : have been purchased by said traders from small-scale ue eared face Gold sellers availing of the tax exemy of sea St cei em oe et rtifcation: (1) to registered small-scale miners upon receipt of a valid & Id, § 30). old Sourcing Notes/Poicest20and%:20Progam aie uy, bS:ww-bsp.goy Rep, Act No. 8424, § 109 (1905) re esPonsibleGoldSourcing iphiCoins%20and%420 SiS 22017/08 site on? Cas amendedin 2021), or NP last vite Nov. 2022 scale miner tele to Flipna ci ‘iizens, voluntaiy frm ctizens who, indivi : Resouces engage under ean UY HEB by the DepriegcomeanY of othe Fino oe ron Malrls ton ge ctitions ofa contac ge oeonment and Nate! Act No. 11266, § 4 (2019), ‘Ground. Rep. Act No, AaaREPL ITV 28 ny CHAPTER ns SEER RBA, RATIONS, oo Bangko Sentral may sell gold grains, pellets, bars, and sheets to local cturers and other industrial users d ‘upon application, or to banks te-sale to jewelry manufacturers or industrial users, at the gold- ‘of Bangko Sentral, plus a service fee to cover costs, including cost ao packaging. There is no legal impediment for Bangko Sentral iyiduals or entities who are neither involved in the business of icturing nor industrial users of gold, subject to the approval of the Je of gold by Bangko Sentral should be settied in the national curency srevailing market 2s determined by the Monetary Board. ginad = oreign Exchange Operations . The New Central Bank Act The es and Sales of Foreign Exchange. ies fand sel forelgn notes and colns, nd ; and instruments of types ‘customarily employed . rn nsfer of funds. The Bangko ‘Sentral may engage ange operations. gage in foreign exchange transactions ollowing entities or persons only: , nes; ting in the Philippi gi re subdivisions and#2 BANKING LAWS OF THE PHILIPPINES ANNOTATED ich the Monetary Board is hereby (* cromorotauthoria eo oreign exchange dealers eutje% to such rules and regulations as the Monetary Board shai, Prescribe. aie the convertibility of the peso, ngko eames pets of any banking institution operating in the Philippines, buy any quantity of foreign exchange offered, and sell any quantity of foreign exchange demanded, by such institution, provided that the foreign currencies so offered or demanded are freely convertible into gold or United States dollars, This requirement shall not apply to demands for foreign notes and coins. The Bangko Sentral 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 this Act. SECTION 71. Foreign Asset Position of the Bangko Sentral. — {he Bangko Sentral shall endeavor to maintain at all times a net esate winraia” asset position so that its gross foreign exchange assets will always exceed its gross foreign liabilities. In the event Tray fhe eaulvalent amount in pesos of the foreign ‘exchange liabilities of the Bangko Sentral exceed twice the equivalent Bongo oormes Ci the foreign exchange assets of the bank the iciauko Sentral shall, within sixty (60) days from the dete the limit th exceeded, submit a report to the Congress stating the origin of these liabilities, and the manner in which they will be Paid. SECTION 72. Emergency Restrictions on Exe aé In order to achieve the primary *hange Operations. 88 set forth in for th rmaaiet (ate: Provided, howeynt roqultder Republic Act Noite requirements, :PART I: REPUBLIC ACT Ny 10.7659, CHAPTER AS AMENDEt Mi BANGKO Sen pee eYREPUBLIC ACT No, ERATIONS TNO: 1211 and to the extent netary Board to be Board shall determine the Reston and disposition ‘ange which is not freely © determine the exchange rate policy cae orate Board shall "The Monetary Board shall determi : Sentral shall buy and sell sot ae at which the Bangko ie, and i ion limits from the effective exchange rate or rates seca proper. The Bangko Sentral shall not collect any additional imissions or charges of any sort, oth Rage crenarseeot other than actual telegraphic s Monetary Board shall similarly determine the rates for other ‘of foreign exchange transactions by the Bangko Sentral, including purchases and sales of foreign notes and coins, but the margins between the effective exchange rates and the rates established may not exceed the corresponding margins for xchange transactions by more than the additional costs or ‘olved in each type of transaction: ON 75. Operations with Foreign Entities. — The Monetary ay authorize the Bangko Sentral to grant loans to and ive loans from foreign banks ‘and other foreign or international oth public and private, and may engage in such other tions with these entities as are in fi siete ee 2 to its character as a centr ‘ ee A83 Set as agent or correspondent for such entities. authority of the e any gold or other assets inst loans which it receivesiG LAWS OF THE PHILIPPINES ANNOTATED BANK ‘Bangko Sentral to buy and sell foreign excp, ee ance isciseretionary and not mandaign oe in the foreign exchange market by buying and von exchange to ensure order and temper destabilizing swings inj selling foreign othe purpose of achieving price stabilty* It does not ay ® exchange (aie ing trend of the peso, whether itis appreciating or deprecain: onsel soc ‘eto smooth out volatility in the exchange rates.©* 5 rather, To ilustrate, if there is an artificially strong demand for dollars causing the exchange rate to weaken, Bargko Sentral can suppress speculation by seling dollars to moderate the depreciating trend. On the other hand, if there is <° artticilly strong supply of dollars relative to demand in the market, Bangko Sena, can temper the appreciation of the peso by buying doliars.%° Foreign Exchange Transactions ‘The Bangko Sentral's authorized to engage in foreign exchange transactions with the following entities or persons only: (1) banks authorized to operate within the Philippines, (2) he government, its political subdivisions and instrumentalties, (8) foreign or international financial institutions, (4) foreign governments and the’; instrumentaities, and (6) other entities or persons that the Monetary Board may authorize as foreign exchange dealers, 1. Banks Operating in the Philippines. ‘The exercise of a offered and demanded by The Bangko Sentre! partwcAcrn : 7 En cE er ENTRAL OPERA ACT NO, epumucrcrho a 2s Governm rents S and Foreign institutions 3. Foreign Exchange Dealers Foreign exchan. ge dealers oF money changing or forei F money changers are enti exchange dealh entities that engage in corps,“ among ot i = lealing business. Th: 9 other entities. Foreign exchange dealers or money chanoer shel shal register with Bangko Sentral, Oe i gee |, in accordance with its rules and regulations, before Foreign exchange deal 1 lers oF m : money service businesses.” janes Phan aers; oe eres antes & Future Exchange Transactions Based on its express authority to enter Pe rer croen nis erinacoropions ant uparescane OR forward transaction is.a straightforward single purchase or sale of one curency for another, settled on any pre-agreed date, three (2) oF more business days afer the transaction date at a specified exchange rate.% An option Cover right or obligation, depending upon whether the party fs fhe purchaser or the writer, respectively, to buy or sell at a speciied price bY 8 specified future date, for a fee or a premium, two (2) different currencies ‘at a specified exchange rate.** In a swap transaction, the parties exchange 'We (2) currencies at a particular rate and agree that at some future date, they "aii reverse the exchange of the same two (2) aorvoncies at a rate (diferent from the rate applied to the first leg) agreed on deal date. 41211 (2019). 4g 70 (1993), as amended Rep. Act No. 11211 200 se business inde ST rofer to AAB subsidianyatflale {forex corpor ———— 4 Rep. Act No. 7653, nge. MORFXT, Glossary ‘of Terms (2022). 8 AAB forex corps Shi puying and seling of foreign exche © MORNBFI, § 907-N (2020). 2 “ ae ental cs, https Jhwww.bsp. 00 ting Package for Banks, oe a a, a car oA (fest viatod Nox. 2022) ote es es rackage for Banks, https! ‘nancial Reporting Pe ge wi ance Sr, esr ns Regulations!BANKING LAWS OF THE PHILIPPINES ANNOTATED Foreign Asset Position , ; Maintaining a net positive foreign asset position results in the redlction of, the cote screen see eciagennd againet foreign exchange losses." The responsibilty of Bangis, Sa EEE Here on eroloanicasa! position is not mandatory indicated by the use of the phrase “shall endeavor” in Section 71 of The Na’ Central Bank Act.** Foreign Exchange Assets The foreign currency financial assots™ of Bangko Sentral may consist of he following:*** 1. Deposits with foreign banks; Other cash balances; Investment securities; Foreign securities purchased under agreements to resell; Loan to IMF; Gold; IMF SDR;#* Due from broker, Cash collateral paid; Derivative instrument in again position; 'Nor-international reserve foreign currency on hand: and Other foreign currency receivables, B09 bel 2 ie 4. a 6. h 8 9. RSs OPE on HF 707, Soo te Hot Comm n Banks and Financial Intermediaries & Economic Aes, 9* Cong., 578 (Dee. 6 : Deputy Governor). « 1992) (statement of Edgardo “ Net foreign assets are the sum of foreign ‘banks, less their foreign liabilities. A ‘hile & negative not foreign aesoteBe he ..0i. Bend urae af PART I: REPUBLIC ACT No, 7259.48 a ent HAPTER Vir BANGKO SENT EOL RS SEMCACT NO. 2K 7 Foreign Exchange Liebiities ‘The foreign currency financial liabilities cere of Bangko Sentral consist of the 4, Short-term deposits, 2, Bonds payable; 3 Allocation of IMF SDR;* and 4, Other liabilities, Report to Congress p pay Sonal shal wih ety (00) days rom ne date tne equlveent Derr tescec een erate eo eacae a ueeincntees mou foreign exchange assets, report to Congress the origin of Sieh trol exchange lablties ard te manner inven they wl b pal Jape Emergency Restrictions on Foreign Exchange Operations The Bangko Sentral, during emergencies, may impose restricions on the exchange operations for the following reasons: (1) to achieve its primary ‘objective of maintaining price stability, (2) to protect its intemational reserves i) the imminence of or during an exchange crisis, or in time of national emergency, and (2) 10 give the Monetary Board and the government te in which to take Constructive measures (0 forestall, combat, or overcome such crisis or emergency oot dovision of the Monetary Board must be concured in by a least fve (8) ofits members and approved by the President.“ “The Intemational reserves should be Kept adenuate fo moet eny foreseeable net demands for foreign currencies." The adequsey of intemational reserves is £n important factor in maintaining the stability ‘and convertiblty ofthe peso, and stable internal economic condition. This necessitates giving the central bank spacial powers to protect the country’s ‘ntemational reserves should an emergency require it arThe term used in Bangko Senta’ ANNU Ropotts and in COR Auted Banko Senta) Financial Statements for Y2021 ei Balance Sheet, COA Aust Report spon. veneia Stops ert hn eet oe Secret eein rarer Pere este jcipation in, or upon fiqul tion of, ae 3 ets a a OO he ifunstats. igo) Soe External Debt Sta yea forcompiers, and user, Nps oa Nov 202 A on se os moar ga cs arene PI - enacted) ee 4#.cong., Congressional Ree 26 (enacted)KiNG LAWS OF THE PHILIPPINES ANNOTATED 18 BAN Contemplated Emergencies i could range from anything tke an intemational monetary cig, gen ewrere the Monetary Board may have fo ems et Stabilize o, oF 8 vant erosion in the value of the currency of the pose. Other examples te Bigencies are war, revolution, civil wa, or SenouS calamity, including a banking ome! ) crisis™ and COVID-19 pandemic.“ ‘Actions during Emergencies : “The Monetary Board may take the following actions during emergencies 4, Temporarily suspend or restrict sales of foreign exchange: 2, Subject all transactions in gold and foreign exchange 10 license by Bangko Sentral; and 3, Require foreign exchange obtained by any person residing or entity operating in the Philippines to be delivered to Bangko Sentral, or to any bank or agent designated by Bangko Sentral for this purpose, at the effective exchange rate or rates. In 1949, the then Central Bank issued Circular No. 20 restricting gold and foreign exchange transactions and subjecting all transactions in gold and foreign exchange to licensing, Section 4(a) of the Circular required, among other things, that foreign exchange receipts be sold to authorized agents of the Central Bank. At that time, the exchange rate set up by the Central Bank was PhP2:USD1. In Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank:#* the Supreme Court recognized the authority of the Central Bank to “commander the dollars earned by exporters,” as was, done by Circular No. 20, issued pursuant to the powers granted to the Central Bank by Section 74 of its charter. The Supreme Cour further stated that the power to license and restrict foreign exchange transactions necessarily the authority of the Central Bank to impose upon licensees such conditions, in Bank < including that of surrendering ine focebss tothe Central Bank, a the latter may deem necessary to protec isHy ot het RE Geb rarac ai ‘sot priorities: This requirement was i ization ° was lifted in 1993, fo frelon exchenge les and vogatone neuead by Creer No 1058 1997 Asian Financial Crisis To ensure that the conduct of : uct of Banks foreign axe cot th forts ese hy the otelgn exons mart ung te 1057 Aen a cial ess, Bangko Sentral implemented the 4. Required prior clearance or nthe sale of non-deliverable forward contracts to non-residents, including offshore banking units" i 2. Adjusted the allowable overbought foreign exchange posit Ne ee ae wuitchorlesh ater patel capital or USD10 million, whichever is lower, and raised the oversold position from not more than 10% to 20% of unimpaired capital then Bangko Sentral lifted the 20% limit of unimpaired capital on short or oversold foreign exchange position of commercial banks" 3, Lowered the celling on the allowable over-the-counter dover Seen of bankswithout need for documentation from |USD100,000to USD25,000, fuer te USD10,000, so as to moderate the demand for dollars? 4, Required the consolidation of banks’ accounts with their subsidiaries Aer fftites inthe computation of banks foreign exchange positions" and rts for all forward sales contracts ‘a cancellations or non-selivery entered ] of outstanding forward sales contracts. Foreign Exchange Restrictions des that there ign Currency Deposit Act of the Philippines prov shall a seatnetion ‘on the withdrawal by the depositor of his epost cor on the transferability of the same Mproad, except those arising fom a3 cies ae at the depositor and the bank In Cancio v. Court et ee epee engi iri thority Central Bank Circular Nos. 68 and 534, requing pron CST ncompass iid not {for taking foreign curren try, should ni Exemption from jy out of the count —— id. id. ‘9 sP Cir. No. 135 (1997) 1 gsp Cit, No. 137 (1987) ‘ez asp Cir. No. 171 (1998) om psp Cir. Nos. rap 1997) 8162 1898). so97, ©” psp Cr Letters sont $87. 4991 ; 8 psp Cir, No. 149 (1 ante?) 8 Rep. Act NO. £428, § 5 (1972) (28 eA, 731) 7 GR No. 73882, 02-22"KING LAWS OF ‘THE PHILIPPINES ANNOTATED BAN 120 defined and guara, rights are expressly a foreign curency depostors whose FNS Hh Teri sines, ao = under the Foreign Currency spon ea a restriction arising ate the failure to declare foreign CHP, Br Carried ous decision does not Com” stresses that the law grants the right of transferabj, of the country, but merely ees abroad of funds ‘withdra\ ‘Acquisition of inconvertible Currencies ‘Sentral does not hold or acquire currencies that ary Generally, 8270 etary Board, however, is given the discretion to authorag oe not freely convertible as the national interest f currencies that are s tre aes, such ag n cases when te accuiston of inconvertibe currencies woug allow Philippine exporters and importers to trade with countries whose currencies cannot be converted easily into gold or US dollar." ‘Another instance in which the Monetary Board authorized the acquisition of inconvertible currencies is when it approved the establishment of Bangko Sentrars Currency Exchange Facility. This facility was created to provide immediate liquidity assistance to overseas Filipinos returning from countries that are affected by emergencies, security risks, or armed conflicts by allowing conversion to pesos of their holdings of non-US dollar currencies. To date, Bangko Sentral has opened nine (9) Currency Exchange Facilities," with the latest pertaining to the Ukraine facility that was activated on May 22, 2022 to cater to the demands of overseas Filipinos who were returning from Ukraine. Exchange Rates The exchange rate is the price of a unit of foreign currency in terms of the domestic currency. This is determined depending on the exchange rate system adopted by a country. Under the system of freely floating exchange rates, the value of the foreign currency in terms of the local currency is determined by the forces of supply and demand just like any commodity or service being/sold in the market. On the other hand, under a fixed exchange rate system, a par value rate is set between the local currency and a reference foreign currency by the central bank. The par value may be adjusted from time to time. © The list of convertible and inconvertble currencies may Ihwww. 'y be viewed at https: om StoPagestStatisics/ExchangeRate,aspx (lat visited Nov. 2022), ieee. Sr HR. 1704, 1* Cong., Congressional Rec. 978 (enacted), ‘Bangko Sentral Media Releases: Bangko Sentral and DFA Sign MOU on Currency Exchange Faciliy for Overseas Filipinos (Oct. 17, 2014) : MediaDispaepx?tomid=3504(aatvsted Neg eet ee h/SitePages/MediaAndResearch! “*' The other Curoney Exchange Facies Lebanon (2020), Kuwal that Bangko Sentra activated are &s follows: iraq, Iran, & ‘ t& Iraq (1981), raq (2008) Syria (2013), & Libya (2014), . Iraq (2003), Lebanon (2008), S BSP Cir, No. 1145 A i) Libya (2011), Egypt (2013). ‘Bangko Sentral, Primer on the Exc Research/Primerss ‘change Rates (March 2020). https: 20F aeslexchange.pe (st Vsted Nov. 2602) Oe? GOK PRMed_an_a Burnisberchamne of PART I: REPUBLIC ACT No, 7653, as, CH AS AMEND VAPTER Vil: BaNGKO. SENTRAL OPE OHS ACT ae ‘The exchange rate is importay 1. Itserves as the for various good. int for several reasons:s basic link betw ree 8, convene, ewe the ocala rate, we are sain ‘and financial assets. Usi r ‘com Using the exchan, uoted in diferent currence’ PRES OF Goods, services, and tose A are ie Sst ul es 3. of rs competitor cot y changed in value, 1p untries whose currencies have not f 4. The exchange rate affects the cost of servicing (principal and interest 1 Payments) on the country's foreign debt. A'peso appreciation reduces : the amount of pesos needed to buy foreign exchange to pay interest and maturing obligations. The Monetary Board determines the exchange rate policy of the country. The country's exchange rate policy supportsa freely floating exchange rate system. The Bangko Sentral does not set the foreign exchange rate but instead allows the value of the peso to be determined by supply of and demand for foreign exchange. The participation of Bangko Sentral in the foreign exchange market is limited to tempering sharp fluctuations in the exchange rate." The adherence of Bangko Sentral to a freely floating exchange rate or a market-determined exchange rate system anchors its commitment to its mandate to promote price stability. On such occasions of excessive movement, Bangko Sentral enters the market mainly to maintain order and stabllity. When warranted, Bangko Sentral also stands ready to provide some liquidity to ensure that legitimate demands for foreign currency are ile I shall i st which Bangko Sentral \etary Board also determines the rates at which buy Pe teiiepotcxsiergs and establishes deviation limits from the tect exchange rate or rates as it deems proper. The Bangko Sentral shall not co! = (2019) nana 055741080 oot a. anak Sentero per lat tes N 22) eee seen rao pn ore Da = pores medi and_ResearciPrimersi20Fagsfnpac Next, https:/werw.bsp.90v! sF Nov. 2022). phiMedio_BANKING LAWS OF THE PHILIPPINES ANNOTATED any additional commissions or charges of any sort, other than actual telegray,,. | or cable costs incurred by it | The Monetary Board similarly determines the rates for other types of foray, i including purchases and salog exchange transactions by Bangko Sentral, Ne a foreign notes and coins, but the margins between the effective exchange rat,, ding margins for and the rates thus established may not exceed the correspon Spot exchange transactions by more than the additional costs or expenses involveg j, each type of transaction. To maintain order and stability in the foreign exchange market, Bang, Sentral uses the following general tools:** 1. Participation in the foreign exchange market;" 2, Monetary policy measures; and 3. Foreign exchange regulations. Operations with Foreign Entities The Bangko Sentral is authorized to borrow from foreign or international entities to build up its international reserves. and other foreign or international entities, both Public and private, and engages in igen to ub authority, Bangko Sentral Participated in swap agreement iquidty sec tatve Muttateralization, which aims to Provide regional dollar liquidity difficulties and/or ites exchange pat (ast vid No teehtenbp gov prada mando by Rep Act No, 11211 2019),mal aks, in en nt lo signees af! PART | REPUBLIC ACT NO. 7653, as aMeNy WV REPUBLIC ACT NO. 112: ¥ 0 IDED BY REPUBLI to repurchase the gold at Se Wreed price when the swap becomes due. Under Such arrangement, Bangko Sentral acquires cash against gold Collateral, with the difference: between the agreed spot-and forward rates as the implied interest rate. Foreign Exchange Swaps Foreign exchange swaps refer to transactions involving the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed on the deal date (the first leg), and a reverse exchange of the same two currencies at a Open Market Operations The New Central Bank Act SECTION 90. Principles of Open Market Operations. — The open market purchases and sales of securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of achieving price stability. ities. —In CTION 91. Purchases and Sales of Government Securities. aaa to achieve the objectives of the national monetary policy, the Bangko Sentral may, in accordance with the principle stated in Section 90 of this Act and with such rules and regulations as may eg prescribed by the Monetary Board, buy and sell in the open market for its own account: " by the Governme: of indebtedness issued directly by ie Sine Philippines or by its political subdivisions; and vernment sof indebtedness issued by go a err eatlkice and fully guaranteed by the Government. - insel (Sept. 17, 2018) * Sree 75 (1993), as amended by Rep. Act No. 11211 (2019). Bangko Sentral, Mone ity! https://www.bsp.gov. ph/Pages/PriceStabi wy Price Stabilty: Monetary Coates ps: MonetaryOperations. aspx (last visited Nov.BANKING LAWS OF THE pHILIPPINES ANNOTATED acquired under the provisions the evidences of f ndeiesery nogot le and regularly serviced of this section must P° tthe general public Anrores yanking and must Nand local government ensuries in denominations of institu thousand pesos or more. Negotiation of Bangko Sentral Obligations, seen ta and Nevers. Bangko Sentral with effective market operations, the Bangko a may, j set epulations as the Monetary Boa Se an ann eavee with the principles stated in Section 90 of this Act, issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko ‘Sentral. Said evidences crindebtedness may be issued directly against the international feserve of the Bangko Sentral or against the securities which it Tee pequired under the provisions of Section 91 of this Act, or may be issued without relation to specific types of assets of the Bangko Sentral. The Monetary Board shall determine the interest rates, maturities and other characteristics of said obligations of the Bangko Sentr and may, if it deems it advisable, denominate the obligations in gold or foreign currencies. ‘Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness of the Bangko Sentral to which this section refers may be acquired by the Bangko Sentral before their maturity, either through purchases in the open market or through redemptions at par and by lot if the Bangko Sentral has reserved the right to make such redemptions. The evidences of Beepiraness ees or redeemed by the Bangko Sentral shall not be included among its assets, ot ohclaenaey 9 , and shall be immediately retired Monetary Operations * Monetary operations refer to the buyi anal eRe cneat ate te buying or selling of government securities, fixed-term deposits, foreign dichahps eae aa acceptance of instruments of Bangko Sentral aim use of other monetai supply conditions for central bank Heit cing the underlying demand and 7 Bangko Sent tral, Price Stabiliy: Monetary MonetaryOperations.aspx (ast vised No ee Hitpsi/www bsp gov phvPagesiP a ). »f riceStability/Sr PART |: REPUBLIC ACT NO. 7853, AS AMENDED BY REPUBLIC ACT NO. 11211 CHAPTER VII: BANGKO. SENTRAL OPERATIONS: = The Bangko Sentral uses monetary cof liquidity in the market and steer Mieton wed ree to influence the level $0, Bangko Sentral implements either » rai cniarnsalng pr Contractionary or expansionary monetary The Bangko Sentral conducts it instruments: ucts its monetary operations through the following 4. _ Open market operations, such everse , Such as facility and issuance of Bangko Seri ehea: ico 2. Acceptance of term deposits; and 3. _ Standing liquidity facilities ‘On June 3, 2016, Bangko Sentral formally ado Becca eee as corridor is a system for guiding short-term market rates toward Bangko Sentral policy interest rate, such as overnight reverse repurchase rate. The interest rate corridor consists of a lending rate, which is usually an overnight lending rate, and a deposit rate of the central bank. In a standard corridor, the lending rate will be above the central bank target or policy rate (upper bound for short-term market rates), and the deposit rate will be below the central bank policy rate (lower bound).” Open Market Operations ‘Open market operation is an instrument of action for the purpose of influencing the money supply. It involves the sale or purchase of government i securities to withdraw liquidity from or inject liquidity into the system. The ‘open’ market operation is conducted either actively or passively. Active open market operation aims for a given quantity of reserves. and allows its price to freely fluctuate, while passive open market operation aims for a specific interest rate and allows the amount of reserves to fluctuate.”* By controlling the money supply through open market operations, Bangko Sentral exerts influence on the prices of goods and services and is able to achieve its inflation objectives.’ Targéting (Mar. 2020), htps:/twwisp-9bv phyMedia_and_ ‘(ast visited Nov. 2022). vations, htps:/imww-bsp.gov.phvPages/PriceStabilty! 701 See Bangko Sentral, Primer on Infition ResoarevPrimers3:20Faqsaraeting Pot (et 2 Bangko Sentral, Price Stability: Monetary MonetaryOperations.aspx (last visited Nov. 2022). hitps:/iwww.imforglen/AboulFactsheets! ‘Sheets/2016/08/01/16/20/Moneta IME, cotta and-CentrarBanking (lest visited Nov. 2022) & IMF, Policy Tools see of Governors a “ne Federal Reserve System, hips:/wwwwelederalreserve.Gov! ) . i ret him (last visited Nov. 2022) j Developing Economies and Emerging Markets in Ee ® jue Transformations to Open Market Operators: npr ie orgextemalpubs/Vssu0s5! | Transformations to Open Market Operations, naan pr 2, one en anne Son Banoo Serta, Pet tr (at ted NOX 2022) ™ IME, Monetary Policy andNNOTATED. ie PHILIPPINES A KING LAWS OF TH 4 BAN! when ts trading conaitions are not limited to any ‘The market is considered as ope” ser rina) 4g sales of securities by Bangko Sena! Should anc ath ievir rit ilit Open market purchases éNd y objective of Bchievid et assist or r some othet done under Open market pose of providing a liquidity fatons2™ The conduct of operations ("Fons isnot in consonance window to investment houses with suena oh transactions cannot be vwith the objective of achieving price stab! iy. Ais regard, the exclusivity of the wirridered 2s open market operations.7# In this FOBEe Ce ag transaction negates the essence of an “open ma! ce “The following are utlized. by Bangko Sentral.in. con’ lucting operations:”" 4, Repurchase and Reverse Repurchase transactions ‘action, Bangko Sentral buys government securities from a bank with a commitment to sul them back at @ specified future date at a predetermined rate, This transaction results in an expansionary effect on liquidity. Conversely, in a reverse repurchase operation, Bangko Sentral sells government securities to the bank and the bank's payment to Bangko Sentral has ‘a contractionary effect on liquidity. : 2. _ Issuance of Bangko Sentral Securities ‘Bangko Sentral securities are negotiable monetary instruments issued as part of its structural liquidity management operations. They may be in the form of bills and bonds, and can be traded in the secondary market under certain conditions. The issuance of these securities absorbs excess liquidity from the financial system by locking funds in longer-term monetary instruments. 3. Outright Purchases and Sales of Securities ‘An outright contract involves direct purchase or sale of governm it government securities by Bangko Sentralfrom or o the market for the purpose of increasing or decreasing ‘roney supply on 2 more permanent bass. In Such transaction, the parties donot Teverse the transaction in the future, creat e on the banking systems level of money supply, nov Permanent effect in a repurchase tra ee 1 Op. Of. General Cour Op. Off. General Counsel Op. Of General Counsel v0 7° Op. Of, Goneral Counse! nsel (une 6, 2012), (Wune 1, 1989), nh (as. 28, 200) June 8, 2012), : Serial, Price Stay, OM beta teat sr Opeaons ps vind No, 2a) MOSM 90 ptyPageaPrcaStbyPART I: REPUBLIC ACT NO. 7653, AS AMEND) CHAPTER Vil BANGRO MENDED BY REPUBLICACTINO. 11211127 ITRAL OPERATIONS, purchase and Sale of Government Securities Consistent with the principles of oj may uy and sell evidence of indebtedness thatann, Peratons: Banako Sentral 4, _ Issued directly by the gov subdivisions; and oo e”meNt of the Philippines or by its political 2, Issued by government i “ap rain nt instrumentalities and fully guaranteed by the The authority of Bangko ‘Sentral under Section 91 of The New Central Bank ‘Act must be differentiated with, its authority under Section 92 of the same law. Under Secon igi i esibedty at Bangko Sentral to. buy and sell government $2 ‘or its own account for open market. rat limited to the government securities that are issued by the an orits political subdivisions, and those by other government instrumentalities that are fully guaranteed by the national government. The authority of Bangko Sentral under Section 92 isto issue its own securities or certificates of indebtedness as its ‘own direct obligation within the limits and conditions prescribed therein.” Thus, the buying and selling of US treasury bonds and/or strips are not allowed under open market operations as these are debt instruments of the US government,”® and not of the Philippine government, These bonds andlor strips, however, may be bought and sold by Bangko Sentral under its authority to engage in foreign exchange operations.” "Features of Evidence of Indebtedness ~ To be eligible under open market operations,"* the government securities that may be bought or sold must be: 1, . Freely negotiable; Regularly serviced; ‘Available to the general public t! government treasuries; and 4, _ In denominations of a thousand pesos or more. ~The phrase “available to the general public’ means that the government Securities must be available to any person, whether natural or juridical.”* Purchases and sales of government securities in the open market shall be made through banks, quasi-banks, and accredited government securities. dealers. hrough banking institutions and local peenneD SW - GRE canara Caneel Oe, 12,2010) ‘Op. Off. General Counsel (Aug. 9, 2004), MS See Rep. Act No. 7653, § 70 (1993), as amended by Rep. Act No. 41211 (2019) © ie 82 MORB, § 601 (2020) $y OP: Off. General Counsel (June 1, 1999). ” MORB, § 601 (2020).INOTATED yan LAWS OF THE PHILIPPINES AN eA 120 jhe local govern jtable through th Ment ay also be aval ‘Such government securities ™: treasuries.” tral Securities Bees Issuance ot ‘monetary authorities iS a Fane oe, Place, Among the standart iS 7 The certificates: MedNess issueg buy, and sell certificates of lh rarasieestieet are monetary instruments fo, by Bangko Sentral, or Bangko uidity management operations to steg, rs tic id li is monetary poy implement a the poe re arc influence Iaucy tions in the financial system.”” Segeiiogs ins securities provides Bangko Sentral win of Bangko Sentral Pr grester fexiny i manag the liquidity in wit lentaetties ne maa the face of large structural liquidity surplus aris wey elossed from the reduction in the reserve requirement ratios of banks, Bangk rities will likewise add to the pool of risk-free assets in Hig hen! sper rg the securities issued by the national government, which can be traded for liquidity purposes. The regular auction and issuance of ‘Bangko Sentral Securities can contribute to the improved price discovery for debt instruments and support monetary policy transmission in the process." The then Central Bank was given authority to issue its own certificate of indebtedness or the Central Bank Certificates of Indebtedness. It, however, resulted in losses due to the issuance of such high-interest-yielding certificates of indebtedness. The Central Bank Certificates of Indebtedness were issued during the extraordinary economic condition of the country, when the Central Bank was then under the leadership of Central Bank Governor Jose “Jobo” B. Fernandez, Jr.” The issuance of the “Jobo Bills” was the “interest rate cure" that Governor Fernandez had to administer to address the skyrocketing domestic inflation, Sagging foreign exchange reserves, and depreciating domestic currency." A policy choice of whether to allow Bangko Sentral to issue its own debt nts is important to avoid future losses. Since Bangko Sentral needs ret sok Sanerl Counsel (June 1, 1999), SRS Pi AaeNb Lneon on Nicoto F. Bernatoo, Chapter 10: Tae Cuisten ‘ Seems. Ts Ausome a + THE Stony oF Prasreme Centra. Bawave: SraBuiry NO Bangko , Monetary Operations = hg a sages ss vied Now sensu, hittps:/www.bsp.gov.ph/Pages! ™ Diwa C. Guinigundo, Rethinking es Monetary Poy, Business Minor, htps/uy ” Err ns enemy ett x tion: is ; itso ene zara yee” Ce, Bigs Ves, psn = ve a z oe a "7Nhe-bsp-anc-inflation-what-mission steep! (last Z undo, ‘de Rethinking Moneta me Tk ca eatin ey an peg Ne: hpsittwordotn Senate 873-74 (une 2, 1993) renal S08) toARTER y AND om iast PART I: REPUBLICACT NO. 7659, CHAPTER Vir Barge MENDED BY REPUBLIC ACT No, nan (0 SENTRAL OPERATIONS cS flexibility to exercise effective moneta to issue its own certificates of in diebiedgene a 'tcannot be deprived of the power manage liquidity in the financial system, such as, the term fi . 3 deposit facility, overnight reverse repurchase facility, overnight deposit faciliy, and ovemight lending facility, The Bangko Seniral securities must be: 1. Compliant with the rules and regulations issued by the Monetary Board; 2. _ In accordance with the principles of open market operations; and 3. Freely negotiable evidence of indebtedness, The Bangko Sentral securities may be acquired before maturity, but only through either purchase in the open market or through redemptions at par and by lot only if Bangko Sentral has reserved the right to make such redemptions. The tedeemed or acquired evidence of indebtedness shall not be included among the assets of Bangko Sentral and shall immediately be retired and cancelled. In general, Bangko Sentral securities are cancelled and withdrawn from the market upon its maturity.*° The Bangko Sentral, however, is allowed to ‘acquire the issued Bangko Sentral Securities before maturity, as long as Bangko Sentral has reserved its right to make such redemption, and such redemption or acquisition is done only either: (1) purchase in the open market, or (2) through redemptions at par and by lot. As such, public sales for purposes of foreclosing collateralized Bangko Sentral Securities before its ‘maturity. is not allowed and will Not satisfy the requirements under Section 92. Upon acquisition prior to maturity, 78(d, al 874-75. z Id, at 875 & 1058 (June 5, 1993). ee fone 0; Tne Crarrer i J-Atoon, Nicoto F. Bervanoo, Crarren 10; Tre vee Fiore Te (cea ersenest ‘STORY OF PHIUPPINE CENTRAL BANKING: STABILITY AND THe ; Staeworn ar Sevenry 348 (2019) > Rop, Act No. 7053, § 92 (1993), as amended by Rep: Act No. 11211 (2019)