REPUBLIC ACT No. 265 (part 2)

CHAPTER II

THE CENTRAL BANK AND THE MEANS OF PAYMENT

ARTICLE I

The Unit of Monetary Value

Section 47

The peso

The unit of monetary value in the Philippines is the "peso," which is represented by the sign "P".

The peso is divided into one hundred equal parts called "centavos," which are represented by the sign "c."

ARTICLE II

The International Value of Peso

Section 48

Par value

The gold value of the peso is seven and thirteen-twenty firsts (7-13/21) grains of gold, nine tenths (0.900) fine, which is equivalent to the United States dollar parity of the peso as provided in section 6 of Commonwealth Act No. 699.

Section 49

Changes in par value

The par value of the peso shall not be altered except when such action is made necessary by the following circumstances:

(a) When the existing par value would make impossible the achievement and maintenance of a high level of production, employment and real income without:

(1) The depletion of the international reserve of the Central Bank; or

(2) The chronic use of restrictions on the convertibility of the peso into foreign currencies or on the transferability abroad of funds from the Philippines; or

(3) Undue Government intervention in, or restriction of, the international flow of goods and services; or

(b) When uniform proportionate changes in par values are made by the countries which are members of the International Monetary Fund; or

(c) When the operation of any executive or international agreement to which the Republic of the Philippines is a party requires an alteration in the gold value of the peso.

Any modification in the gold or dollar value of the peso must be in conformity with the provisions of all executive and international agreements subscribed to and ratified by the Republic of the Philippines, and such modification shall be made only by the President of the Republic upon the proposal of the Monetary Board and with the approval of Congress. The proposal of the Monetary Board shall require the concurrence of at least five of the members of the Board.

Notwithstanding the provision of the preceding paragraph with respect to the approval of Congress, if there should be an emergency which, in the opinion of the President, is so grave and so urgent as to require immediate action, the President may modify the par value of the peso without the prior approval of Congress: Provided, however, That he shall report to the Congress on his action at the earliest opportunity.

Section 50

Parities of foreign currencies with respect to the peso

The legal parities of foreign currencies with respect to the Philippine peso shall be determined as follows:

(a) Currencies of countries which are members of the International Monetary Fund shall have their parities with respect to the peso established on the basis of their par values announced by said Fund. In the par value of the currency of a member country has not been announced, the parity of such currency with respect to the peso shall be calculated on the basis of the exchange rates for that currency in foreign markets. If there is divergence among the rates quoted in foreign markets, the Monetary Board shall determine which rates shall be employed for the calculation of parity.

(b) Currencies of countries which are not members of the International Monetary Fund shall have their parities with the peso established on the basis of their gold or United States dollar equivalents, provided such currencies are freely and effectively convertible into gold or dollars. Whenever the currency of any such country is not so convertible, its parity with the peso shall be calculated on the basis of the exchange rates for that currency in foreign markets. If there is divergence among the rates quoted in foreign markets, the Monetary Board shall determine which rates shall be employed for the calculation of parity.

The Central Bank shall determine, in conformity with the provisions of this section, and shall publish regularly, the legal parities of the foreign currencies of importance in the international transactions of the Philippines. The Central Bank may also specify the parity of any foreign currency not included in the published list of parities.

The parities published or specified by the Central Bank shall be recognized as the legal parities for all purposes.

ARTICLE III

Issue of Means of Payment

A.     CURRENCY

Section 51

Definition of currency

The word "currency" is hereby defined, for the purposes of this Act, as meaning all Philippine notes and coins issued or circulating in accordance with the provisions of this Act.

Section 52

Issue power

The Central Bank shall have the sole right and authority to issue currency within the territory of the Philippines. No other person or entity, public or private, may put into circulation notes, coins or any other object or document which, in the opinion of the Monetary Board, might circulate as currency.

The Monetary Board may issue such regulations as it may deem advisable in order to prevent the circulation of foreign currency or of currency substitutes.

Section 53

Liability for notes and coins

Notes and coins issued by the Central Bank shall be liabilities of the Bank and may be issued only against, and in amounts not exceeding, the assets of the Bank. Said notes and coins shall be a first and paramount lien on all assets of the Central Bank.

The Central Bank's holdings of its own notes and coins shall not be considered as part of its currency issue and, accordingly, shall not form part of the assets or liabilities of the Bank.

Section 54

Legal tender power

All notes and coins issued by the Central Bank shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private.

Section 55

Characteristics of the currency

The Monetary Board, with the approval of the President of the Philippines, shall prescribe the denominations, dimensions, designs, inscriptions and other characteristics of notes issued by the Central Bank: Provided, however, That said notes shall state that they are liabilities of the Central Bank and are fully guaranteed by the Government of the Republic of the Philippines. Said notes shall bear the signatures, in facsimile, of the President of the Philippines and of the Governor of the Central Bank.

Similarly, the Monetary Board, with the approval of the President of the Philippines, shall prescribe the weight, fineness, designs, denominations and other characteristics of the coins issued by the Central Bank. In the minting of coins, the Monetary Board shall give full consideration to the availability of suitable metals and to their relative prices and cost of minting.

Section 56

Printing of notes and minting of coins

The Monetary Board shall prescribe the amounts of notes and coins to be printed and minted, respectively, and the conditions to which the printing of notes and the minting of coins shall be subject. The Monetary Board shall have the authority to contract institutions, mints or firms for such operations.

All expenses incurred in the printing of notes and the minting of coins shall be for the account of the Central Bank.

Section 57

Interconvertibility of currency

The Central Bank shall exchange, on demand and without charge, Philippine currency of any denomination for Philippine notes and coins of any other denomination requested. If, for any reason, the Central Bank should temporarily be unable to provide notes or coins of the denominations requested it shall meet its obligation by delivering notes and coins of the denominations which most nearly approximate those requested.

Section 58

Replacement of currency unfit for circulation

The Central Bank shall withdraw from circulation and shall demonetize all notes and coins which for any reason whatsoever are unfit for circulation and shall replace them by adequate notes and coins: Provided, however, That the Central Bank shall not replace notes and coins the identification of which is impossible, coins which show signs of filing, clipping or perforation, and notes which have lost more than two-fifths of their surface or all of the signatures inscribed thereon. Notes and coins in such mutilated condition shall be withdrawn from circulation and demonetized without compensation to the bearer, unless it is proved to the satisfaction of the Central Bank that the currency became unfit for circulation as a result of accidental causes or forces beyond control, in which case replacement shall be made.

Section 59

Retirement of old notes and coins

The Central Bank may call in for replacement notes of any series or denomination which are more than five years old and coins which are more than ten years old.

Notes and coins called in for replacement in accordance with this provision shall remain legal tender for a period of one year from the date of call. After this period, they shall cease to be legal tender but during the following three years, or for such longer period as the Monetary Board may determine, they may be exchanged at par and without charge in the Central Bank and by agents duly authorized by the Central Bank for this purpose. After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of the Central Bank and shall be demonetized. The Central Bank shall also demonetize all notes and coins which have been called in and replaced.

Section 60

Profits from recoinage or from reductions in the Bank's currency liabilities

Any profits resulting from recoinage or from a reduction in the liabilities of the Central Bank through loss, destruction or demonetization of currency shall be used for the purposes mentioned in section 45 of this Act.

B.      DEPOSIT MONEY

Section 61

Definition

For the purposes of this Act, the term "deposit money" means all those liabilities of the Central Bank and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of checks.

Section 62

Issue of deposit money

Only banks duly authorized so to do may accept funds or create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall be subject to the control of the Monetary Board in accordance with the powers granted it with respect thereto under this Act.

Section 63

Legal character

Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor.

CHAPTER III

GUIDING PRINCIPLES OF MONETARY ADMINISTRATION BY THE CENTRAL BANK

ARTICLE I

Domestic Monetary Stabilization

Section 64

Guiding principle

The Monetary Board shall endeavor to control any expansion or contraction in the money supply, or any rise or fall in prices, which, in the opinion of the Board, is prejudicial to the attainment or maintenance of a high level of production, employment, and real income. In adopting policies and measures in accordance with this principle the Monetary Board shall have due regard for their effects on the availability and cost of money to particular sectors of the economy as well as to the economy as a whole, and their effects on the relationship of domestic prices and costs to world prices and costs.

Section 65

Definition of the money supply

For the purposes of this section, and of this Act, the money supply is defined as consisting of all holdings of domestic currency and deposit money with the exception of such holdings by the Government and by banks having checking deposit liabilities in domestic currency. The statistics prepared by the Central Bank on the volume of the money supply shall be based on this definition to the extent that available data permit.

Section 66

Action when abnormal movements occur in the money supply or price level

Whenever abnormal movements in the money supply or in prices endanger the stability of the Philippine economy or important sectors thereof, the Monetary Board shall:

(a) Take such remedial measures as are appropriate and within the powers granted to the Monetary Board and the Central Bank under the provisions of this Act; and

(b) Submit to the President of the Philippines and the Congress, and make public, a detailed report which shall include, as a minimum, a description and analysis of:

(1) The causes of the rise or fall of the money supply or of prices;

(2) The extent to which the changes in the money supply or in prices have been reflected in changes in the level of domestic output, employment, wages and economic activity in general, and the nature and significance of any such changes; and

(3) The measures which the Monetary Board has taken and the other monetary fiscal or administrative measures which it recommends be adopted.

Whenever the money supply increases or decreases by more than fifteen per cent (15%), or the cost of living index increases by more than ten per cent (10%), in relation to the level existing at the end of the corresponding month of the preceding year, the Monetary Board shall submit the report to which reference is made in subsection (b) of this section, and shall state therein whether, in the opinion of the Board, said changes in the money supply or cost of living represent a threat to the stability of the Philippine economy or of important sectors thereof.

The Monetary Board shall continue to submit periodic reports to the President of the Philippines until it considers that the monetary or price disturbances have disappeared or have been adequately controlled.

ARTICLE II

International Monetary Stabilization

Section 67

Guiding principle

The Central Bank of the Philippines shall exercise its powers under this Act to maintain the par value of the peso and the convertibility of the peso into other freely convertible currencies.

Section 68

International reserve

In order to maintain the international stability and convertibility of the Philippine peso, the Central Bank shall maintain an international reserve adequate to meet any foreseeable net demands on the Bank for foreign currencies.

In the judging the adequacy of the international reserve, the Monetary Board shall be guided by the prospective receipts and payments of foreign exchange by the Philippines. The Board shall give special attention to the volume and maturity of the Central Bank's own liabilities in foreign currencies, to the volume and maturity of the foreign exchange assets and liabilities of other banks operating in the Philippines and, insofar as they are known or can be estimated, the volume and maturity of the foreign exchange assets and liabilities of all other persons and entities in the Philippines.

Section 69

Composition of the international reserve

The international reserve of the Central Bank of the Philippines may include the following assets:

(a)  Gold; and

(b)  Assets in foreign currencies in the form of: documents and instruments of types customarily employed for the international transfer of funds; demand and time deposits in central banks, treasuries and commercial banks abroad; foreign government securities with maturities not exceeding five years; and foreign notes and coins.

The Monetary Board shall endeavor to hold the foreign exchange resources of the Central Bank in freely convertible currencies; moreover, the Board shall give particular consideration to the prospects of continued strength and convertibility of the currencies in which the reserve is maintained, as well as to the anticipated demands for such currencies. The Monetary Board shall issue regulations determining the other qualifications which foreign exchange assets must meet in order to be included in the international reserve of the Central Bank.

The Central Bank shall be free to convert any of the assets in its international reserve into any other asset of a type included under subsections (a) and (b) of this section.

Section 70

Action when the international stability of the peso is threatened

Whenever the international reserve of the Central Bank falls to an amount which the Monetary Board considers inadequate to meet the prospective net demands on the Central Bank for foreign currencies, or whenever the international reserve appears to be in imminent danger of falling to such a level, or whenever the international reserve is falling as a result of payments or remittances abroad which, in the opinion of the Monetary Board, are contrary to the national welfare, the Monetary Board shall:

(a) Take such remedial measure as are appropriate and within the powers granted to the Monetary Board and the Central Bank under the provisions of this Act; and

(b) Submit to the President of the Philippines a detailed report which shall include, as a minimum, a description and analysis of:

    (1) The nature and causes of the existing or imminent decline;

    (2) The remedial measures already taken or to be taken by the Monetary Board;

     (3) The further monetary, fiscal or administrative measures proposed; and

     (4) The character and extent of the cooperation required from other Government agencies for the successful execution of the policies of the Monetary Board.

If the resultant actions fail to check the deterioration of the reserve position of the Central Bank, or if the deterioration cannot be checked except by chronic restrictions on exchange and trade transactions or by sacrifice of the domestic objectives of a high level of production, employment and real income, the Monetary Board shall propose to the President such additional action as it deems necessary to restore equilibrium in the international balance of payments of the Philippines.

The Monetary Board shall submit periodic reports to the President until the threat to the international monetary stability of the Philippines has disappeared.

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