CHAPTER IV
INSTRUMENTS OF CENTRAL BANK ACTION
ARTICLE I
General Criteria
Section 71
Means of action
In order to achieve the international and domestic objectives of the
national monetary policy, the Monetary Board shall rely on its moral influence,
the powers granted to it under this Act for the regulation of money, credit and
exchange, and the support and cooperation of the Government and all its
agencies.
ARTICLE II
Operations in Gold and Foreign Exchange
Purchases and sales of gold
The Central Bank may buy and sell gold in any form, subject to such
regulations as the Monetary Board may issue.
The Monetary Board may at any time require that any gold held by any
person or entity under the jurisdiction of the Philippines be delivered to the
Central Bank or to any banks or other agents contracted or engaged by the
Central Bank for the purpose. The Monetary Board may also impose conditions
under which gold in any shape or form may be acquired and held, transported,
melted or treated, imported, exported, earmarked or held in custody for foreign
or domestic account.
The purchases and sales of gold authorized by this section shall be
made in national currency and at rates which do not differ from the par value
of the peso by more than the margins established by the International Monetary
Fund.
Section 73
Purchases and sales of
foreign exchange
The Central Bank may buy and sell foreign notes and coins, and
documents and instruments of types customarily employed for the international
transfer of funds. The Bank may engage in future exchange operations.
The Central Bank may engage in foreign exchange transactions with the
following entities only:
(a) Banking institutions operating in the Philippines;
(b) The Government, its political subdivisions and
instrumentalities;
(c) Foreign or international financial institutions; and
(d) Foreign governments and their instrumentalities.
In order to maintain the convertibility of the peso, the Central Bank,
shall, at the request 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 Central Bank shall effect its exchange transactions between foreign
currencies and the Philippine peso at the rates determined in accordance with
the provisions of section 76.
Section 74
Emergency restrictions on
exchange operations
Notwithstanding the provisions of the third paragraph of the preceding
section, in order to protect the international reserve of the Central Bank
during an exchange crisis and to give the Monetary Board and the Government
time in which to take constructive measures to combat such a crisis, the
Monetary Board, with the concurrence of at least five of its members, and with
the approval of the President of the Philippines, may temporarily suspend or
restrict sales of exchange by the Central Bank and may subject all transactions
in gold and foreign exchange to license by the Central Bank. The adoption of
the emergency measures authorized in this section shall be subject to any
executive and international agreements to which the Republic of the Philippines
is a party.
Section 75
The Central Bank shall avoid the acquisition and holding of currencies
which are not freely convertible, and may acquire such currencies in an amount
exceeding the minimum balance necessary to cover current demands for said
currencies only when, and to the extent that, such acquisition is considered by
the Monetary Board to be in the national interest. The Monetary Board shall
determine the procedures which shall apply to the acquisition and disposition
by the Central Bank of foreign exchange which is not freely utilizable in the
international market.
Section 76
Exchange rates
The Monetary Board shall determine the rates at which the Central Bank
shall buy and sell spot exchange, but said rates shall not differ by more than
one-half of one per cent from the legal parities established in section 50,
unless in any given case a greater divergence from the legal parity exists in
foreign markets. The Central Bank shall not collect any additional commissions
or charges of any sort, other than actual telegraphic or cable costs incurred
by it.
The Monetary Board shall similarly determine the rates for other types
of foreign exchange transactions by the Central Bank, including purchases and
sales of foreign notes and coins, but the margins between the legal parities
and the rates thus established may not exceed the corresponding margins for
spot exchange transactions by more than the additional costs or expenses
involved in each type of transaction.
Section 77
Revaluation profits and
losses on Central Bank's international assets
The profits or losses arising from any revaluation of the Central
Bank's net assets or liabilities in gold or foreign currencies as a result of
changes in the gold value of the peso, or of changes in the parities or
exchange rates of foreign currencies with respect to the Philippine peso, shall
be distributed in the manner provided in section 44 of this Act.
Section 78
Operations with foreign
entities
The Central Bank of the Philippines may grant loans to and receive
loans from foreign banks and other foreign or international entities, both
public and private, and may engage in such other operations with these entities
as are in the national interest and are appropriate to its character as a
central bank. The Central Bank may also act as agent or correspondent for such
entities.
The Central Bank may pledge any gold or other assets which it possesses
as security against loans which it receives from foreign or international
entities.
ARTICLE III
Regulation of Foreign Exchange Operations of the
Banks
Section 79
Rates applicable to
purchases and sales of exchange by the banks
The Monetary Board shall determine the minimum and maximum rates at
which the banks may buy spot exchange, and the maximum and minimum rates at
which they may sell spot exchange, but the rates thus established for each
currency shall not differ from the respective legal parity by more than one per
cent, unless in any given case a greater divergence from parity exists in
foreign markets. The banks shall not collect any additional commissions or
charges other than actual telegraphic or cable costs incurred by them.
The rates to be used by the banks for other types of exchange
transactions shall be based on their spot exchange rates and shall not differ
from such rates by margins greater than those considered reasonable by the
Monetary Board: Provided, however, That the Board may at any time specifically
fix such margins. The Monetary Board shall issue such rules and regulations as
may be necessary to implement the provisions of this paragraph.
The rates established in accordance with the provisions of this section
shall not apply to exchange transactions with the Central Bank. Such
transactions shall be made at the rates established in accordance with the provisions
of section 76 of this Act.
Section 80
Foreign exchange holdings of
the banks
In order that the Central Bank may at all times have foreign exchange
resources sufficient to enable it to maintain the international stability and
convertibility of the peso, or in order to promote the domestic investment of
bank resources, the Monetary Board may require the banks to sell to the Central
Bank all or part of their surplus holdings of foreign exchange. Such transfers
may be required for all foreign currencies or for only certain of such
currencies, according to the decision of the Monetary Board. The transfers
shall be made at the rates established under the provisions of section 76 of
this Act.
For the purposes of this Act, surplus holdings of any foreign currency
shall be defined as the amount by which a bank's assets in the currency exceed
the sum of the working balance required to accommodate normal short run
fluctuations between the bank's sales and purchases of said currency and the
total liabilities of the bank in the currency: Provided, however, That in
calculating surplus holdings in any given currency, a bank may, at the
discretion of the Monetary Board, subtract from its net assets in that currency
an amount equal to any net liabilities of the bank in other currencies into
which said currency is freely convertible.
The Monetary Board may stipulate that the working balance to which
reference is made in the preceding paragraph shall not exceed a specified
proportion of the average daily sales of the respective currency by the bank to
entities other than the Central Bank during the preceding month. Any proportion
thus established by the Monetary Board, and any requirement to transfer foreign
exchange to the Central Bank, shall be applied to all banks alike and without
discrimination.
Section 81
Requirement of balanced
currency position
The Monetary Board may require the banks to maintain a balanced
position between their assets and liabilities in Philippine pesos or in any
other currency or currencies in which they operate. The banks shall be granted
a reasonable period of time in which to adjust their currency positions to any
such requirement.
The powers granted under this section shall be exercised only when
special circumstances make such action necessary, in the opinion of the
Monetary Board, and shall be applied to all banks alike and without
discrimination.
Section 82
Regulation of non-spot
exchange transactions
In order to restrain the banks from taking speculative positions with respect
to future fluctuations in foreign exchange rates, the Monetary Board may issue
such regulations governing bank purchases and sales of non-spot exchange as it
may consider necessary for said purpose.
Section 83
Revaluation profits and
losses on bank's holdings of gold and foreign exchange
Any revaluation profits realized or losses suffered by the banks on
their net assets or liabilities in gold or freely convertible foreign
currencies as a result of changes in the par value of the peso, in the legal
parities between the Philippine peso and such foreign currencies, or in the
Central Bank's exchange rates for such currencies, shall be for the account of
the Central Bank in their entity.
The Monetary Board may at any time declare that revaluation profits or
losses on bank's net holdings of any foreign currency other than those included
under the provisions of the first paragraph of this section shall also be for
the account of the Central Bank until such time as the Board gives notice to
the contrary. Said notice shall be communicated to the banks at least eight
days before the date on which the revaluation risks cease to be for the account
of the Central Bank, however, and shall apply only on acquisitions of the
specified foreign currency subsequent to said date. The Board shall issue
appropriate regulations to restrain the banks from increasing their holdings of
the specified currency during the period from the date of the notice to the
date on which it becomes effective.
The Monetary Board shall issue such rules and regulations as may be
necessary to administer the provisions of this section.
Section 84
Other exchange losses
The banks shall bear the risks of non-compliance with the terms of the
foreign exchange documents and instruments which they buy or sell, and shall
also bear any other typically commercial or banking risks, including exchange
risks not assumed by the Central Bank under the provisions of the preceding
section.
Section 85
Information on exchange
operations
The banks shall report to the Central Bank of the Philippines the
volume and composition of their purchases and sales of gold and foreign
exchange each day, and must furnish such additional information as the Central
Bank may request with reference to the movements in their accounts in foreign
currencies.
The Monetary Board may also require other persons and entities to
report to it currently all transactions or operations in gold, in any shape or
form, and in foreign exchange. The Monetary Board shall prescribe the forms on
which such declarations must be made. The accuracy of the declarations may be
verified by the Central Bank by whatever inspection it may deem necessary.
ARTICLE IV
Loans to Banking Institutions
A. THE CREDIT POLICY OF THE CENTRAL BANK
Section 86
Guiding principle
The rediscounts, discounts, loans and advances which the Central Bank
is authorized to extend to banking institutions under the provisions of the
present article of this Act shall be used to regulate the volume, costs,
availability and character of bank credit and to provide the banking system
with liquid funds in times of need.
In the periods of inflation, or as long as inflationary dangers exist,
the Central Bank shall refrain from extending credit to banks and at such times
shall grant credit only in exceptional cases where special circumstances
justify a deviation from the principle stated herein.
Conversely, whenever the national monetary policy requires an expansion
of the money supply, the Central Bank shall make full use of the credit
operations authorized under the present article of this Act.
B. NORMAL CREDIT OPERATIONS
Section 87
Authorized types of
operations
Subject to the principles stated in the preceding section of this Act,
the Central Bank may normally and regularly carry on the following credit operations
with banking institutions operating in the Philippines:
(a) Commercial credits
The Central Bank may
rediscount, discount, buy and sell bills, acceptances, promissory notes and
other credit instruments with maturities of not more than 180 days from the
date of their rediscount, discount or acquisition by the Central Bank and
resulting from transactions related to:
(1) The importation, exportation, purchase or sale of
readily salable goods and products, of their transportation within the
Philippines; or
(2) The storing of non-perishable goods and products
which are duly insured and deposited, under conditions assuring their
preservation, in authorized bonded warehouses or in other places approved by
the Monetary Board.
(b) Production credits
The Central Bank may
rediscount, discount, buy and sell bills, acceptances, promissory notes and
other credit instruments having maturities of not more than 270 days from the
date of their rediscount, discount or acquisition by the Central Bank and
resulting from transactions related to the production or processing of
agricultural, animal, mineral or industrial products. Documents or instruments
acquired in accordance with this subsection shall be secured by a pledge of the
respective crops or products.
(c) Advances
The Central Bank may grant
advances against the following kinds of collateral for fixed periods which,
with the exception of advances against the collateral named in clause (4) of
the present subsection, shall not exceed 180 days:
(1) Gold coins or bullion;
(2) Securities representing obligations of the Central
Bank or of other domestic credit institutions of recognized solvency;
(3) The credit instruments to which reference is made in
subsection (a) of this section;
(4) The credit instruments to which reference is made in
subsection (b) of this section, for periods which shall not exceed 270 days;
(5) Utilized portions of advances in current account
covered by regular overdraft agreements related to operations included under
subsections (a) and (b) of this section, and certified as to amount and
liquidity by the institution soliciting the advance;
(6) Negotiable treasury bills, certificates of
indebtedness, notes and other negotiable obligations of the Government maturing
within three years from the date of the advance; and
(7) Negotiable bonds issued by the Government of the
Philippines, by Philippine provincial, city or municipal governments, or by any
Philippine Government instrumentality, and having maturities of not more than
ten years from the date of the advance.
The rediscounts, discounts, loans and advances made in accordance with
the provisions of this section may not be renewed or extended unless
extraordinary circumstances fully justify such renewal or extension.
Advances made against the collateral named in clauses (6) and (7) of
subsection (c) of this section may not exceed 80 per cent of the current market
value of the collateral.
C. EXTRAORDINARY CREDIT OPERATIONS
Section 88
Loans to mortgage
institutions
Under special circumstances in which the Monetary Board considers it
advisable to promote or facilitate the lending operations, or certain classes
thereof, of savings bank, building and loan associations, or of the
Rehabilitation Finance Corporation, the Central Bank may grant loans or
advances with maturities of not more than one year to said institutions against
pledge or assignment of payments, installments or amortizations of their
borrowers coming due within the twelve months from the date of the granting of
such loans or advances, and in an amount not exceeding forty per cent of the
payments, installments or amortizations pledged or assigned: Provided, however,
That the Central Bank shall not make such loans or advances whenever such
action would aggravate or contribute to inflationary tendencies existing in the
economy.
In granting loans and advances under this section, the Central Bank
shall first ascertain that the payments, installments and amortizations to be
pledged or assigned to it are in no case currently in arrears and that said
payments, installments and amortizations are related to credit operations which
in every case are adequately secured by mortgages. Said mortgages shall be
assigned to the Central Bank.
Section 89
Extension of maturities
Whenever, in the opinion of the Monetary Board, a deflationary
situation exists which requires special expansionary credit measures, the
Central Bank may extend the maximum maturities of new credit operations granted
under the provisions of subsections (a), (b) and (c) of section 87 to periods
not exceeding one year.
D. EMERGENCY CREDIT OPERATIONS
Section 90
Emergency loans and advances
In periods of emergency or of imminent financial panic which directly
threaten monetary and banking stability, the Central Bank may grant banking
institutions extraordinary advances secured by any assets which are defined as
acceptable security by a concurrent vote of at least five members of the
Monetary Board. While such advances are outstanding, the debtor institution may
not expand the total volume of its loans or investments without the prior
authorization of the Monetary Board.
E. CREDIT TERMS
Section 91
Interest and rediscount
rates
The Monetary Board shall fix the interest and rediscount rates to be
charged by the Central Bank on its credit operations in accordance with the
character and term of the operation, but after due consideration has been given
to the credit needs of the market, the composition of the Central Bank's
portfolio, and the general requirements of the national monetary policy.
Section 92
Endorsement
The documents rediscounted, discounted, bought or accepted as
collateral by the Central Bank in the course of the credit operations
authorized in this article must bear the endorsement of the institution for
which they are received.
Section 93
Repayment of credits
Documents rediscounted, discounted or accepted as collateral by the
Central Bank must be withdrawn by the borrowing institution on the dates of
their maturities, or upon liquidation of the obligations which they represent
or to which they relate whenever said obligations have been liquidated prior to
their dates of maturity.
Banks shall have the right at any time to withdraw any documents which
they have presented to the Central Bank as collateral, upon payment in full of
the corresponding debt to the Bank, including interest charges.
Section 94
Other requirements
The Monetary Board may prescribe, within the general powers granted to
it under this Act, additional conditions which borrowing institutions must
satisfy in order to have access to the credit of the Central Bank. These
conditions may refer to the rates of interest charged by the banks, to the
purposes for which their loans in general are destined, and to any other
clearly definable aspect of the credit policy of the bank.
ARTICLE V
Credit Operations with the Government
Section 95
Provisional advances to the
Government
The Central Bank may make direct provisional advances to the Government
or to any of its political subdivisions to finance expenditures authorized in
the annual appropriations of the borrowing entity: Provided, That said advances
must be repaid before the end of the first quarter following the end of the
fiscal year of the Government or political subdivision and shall not, in their
aggregate, exceed fifteen per cent of the average annual income of the borrower
for the last three preceding years.
ARTICLE VI
Open Market Operations for the Account of the
Central Bank
Section 96
Principles of open market
operations
The open market purchases and sales of securities by the Central Bank
shall be made exclusively for the purpose of achieving the objectives of the
national monetary policy and shall be limited to the operations authorized in
sections 97 and 98 of this Act.
Accordingly in periods of inflation or as long as inflationary dangers
exist, the Central Bank shall refrain from open market purchases and at such
times shall endeavor to reduce its security holdings and/or to sell the
evidences of indebtedness which it is permitted to issue under the provisions
of section 98 of this Act.
Conversely, whenever the national monetary policy requires an expansion
of the money supply, the Central Bank may repurchase its own evidences of
indebtedness prior to their date of maturity, as authorized in section 98, and
may acquire the securities to which reference is made in section 97. In
purchasing said securities, the Central Bank shall give preference to
short-term obligations, in order that the Bank may be in a better position to
reduce the money supply should conditions in the future so require.
Whenever securities meeting the conditions established in section 97 of
this Act represent obligations in foreign currencies, the decisions of the
Monetary Board to purchase and sell such securities shall be governed by the
adequacy of the international reserve of the Central Bank and by the effect
which such operations would have on the balance of payments and the volume of
the money supply.
Section 97
Purchases and sales of
Government securities
In order to achieve the objectives of the national monetary policy, the
Central Bank may, in accordance with the principles stated in section 96 of
this Act and with such rules and regulations as may be prescribed by the
Monetary Board, buy and sell in the open market for its own account:
(a) Evidences of indebtedness issued directly by the
Government of the Philippines or by its political subdivisions, and
(b) Evidences of indebtedness issued by Government
instrumentalities and fully guaranteed by the Government.
The evidences of indebtedness acquired under the provisions of this
section must be freely negotiable and regularly serviced.
Section 98
Issue and negotiation of
Central Bank obligations
In order to provide the Central Bank with effective instruments for
open market operations, the Bank may, subject to such rules and regulations as
the Monetary Board may prescribe and in accordance with the principles stated
in section 96 of this Act, issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bank. Said evidences of indebtedness may be
issued directly against the international reserve of the Bank or against the
securities which it has acquired under the provisions of section 97 of this
Act, or may be issued without relation to specific types of assets of the Bank.
The Monetary Board shall determine the interest rates, maturities and
other characteristics of said obligations of the Bank, and may, if it deems it
advisable, denominate the obligations in gold or foreign currencies.
Subject to the principles stated in section 96 of this Act, the
evidences of indebtedness of the Central Bank to which this section refers may
be acquired by the Bank before their maturity, either through purchases in the
open market or through redemptions at par and by lot if the Bank has reserved
the right to make such redemptions. The evidences of indebtedness acquired or
redeemed by the Central Bank shall not be included among its assets, and shall
be immediately retired and cancelled.
ARTICLE VII
Composition of Central Bank's Portfolio
Section 99
Review of the Central Bank's
portfolio
At least once every month the Monetary Board shall review the portfolio
of the Central Bank in relation to the Bank's future credit policy.
In reviewing the Central Bank's portfolio, the Monetary Board shall
especially consider whether a sufficiently large part of the portfolio consists
of assets with early maturities, in order that a contraction in Central Bank
credit may be effected promptly whenever the national monetary policy so
requires.
ARTICLE VIII
Bank Reserves
Section 100
Reserve requirements
In order to control the volume of money created by the credit
operations of the banking system, banks operating in the Philippines shall be
required to maintain reserves against their deposit liabilities. The required
reserves of each bank shall be proportional to the volume of its deposit
liabilities and shall ordinarily take the form of a deposit in the Central Bank
of the Philippines; nevertheless, the Monetary Board may, whenever circumstances
warrant, permit the maintenance of part of the required reserves in the form of
assets other than peso deposits with the Central Bank. Reserve requirements
shall be applied to all banks uniformly and without discrimination.
Section 101
Required reserves against
peso deposits
The Monetary Board is authorized to prescribe and modify the minimum
reserve ratios applicable to each class of peso deposits: Provided, however,
That such ratios shall not be less than five per cent (5%) or more than
twenty-five per cent (25%) for time and saving deposits, and shall not be less
than ten per cent (10%) or more than fifty per cent (50%) for demand deposits.
Notwithstanding the provisions of the preceding paragraph of this
section, the Monetary Board may, in periods of inflation, prescribe higher
reserve ratios, but not exceeding 100 per cent, for any future increase in the
deposits of each bank above the amounts outstanding on the date on which the
bank is notified of the requirement.
Whenever the reserve requirements established by the Monetary Board
place any bank under obligation to maintain minimum reserves in excess of
twenty-five per cent (25%) of its total time or savings deposits, or in excess
of fifty per cent (50%) of its total demand deposits, the Central Bank may pay
interest on said excess at a rate which shall not be higher than the Bank's
lowest rediscount rate.
Section 102
Required reserves against
foreign currency deposits
The Monetary Board is similarly authorized to prescribe and modify the
minimum reserve ratios applicable to deposits denominated in foreign
currencies: Provided, however, That such ratios may not be set below ten per
cent (10%) or above one hundred per cent (100%), with respect to deposit
liabilities in each foreign currency.
The Monetary Board shall determine the form and the currency, either
national or foreign, in which such reserves shall be maintained: Provided,
however, That any such requirements shall not preclude the banks from keeping a
balanced position between their assets and liabilities in each of the foreign
currencies in which they operate.
Section 103
Reserves against unused
balances of overdraft lines
In order to facilitate Central Bank control over the volume of bank
credit, the Monetary Board may establish minimum reserve requirements for
unused balances of overdraft lines.
The powers of the Monetary Board to prescribe and modify reserve
requirements against unused balances of overdraft lines shall be the same as
its powers with respect to reserve requirements against demand deposits.
Section 104
Increase in reserve
requirements
Whenever it becomes necessary, in the opinion of the Monetary Board, to
increase reserve requirements against existing liabilities, the increase shall
be made in a gradual manner and shall not exceed four percentage points in any
thirty-day period. The banks shall be notified reasonably in advance of the
date on which such increase is to become effective.
Section 105
Computation on reserves
The reserve position of each bank shall be calculated daily on the
basis of the amount, at the close of business for the day, of the bank's
reserves and the amount of its liability accounts against which reserves are
required to be maintained.
For the purpose of computing the reserve position of each bank, its
principal office in the Philippines and all its branches and agencies located
therein shall be considered as a single unit.
Section 106
Reserve deficiencies
Whenever the reserve position of any bank, computed in the manner
specified in the preceding section of this Act, is below the required minimum,
the bank shall pay the Central Bank one-tenth of one per cent (1/10 of 1%) per
day on the amount of the deficiency: Provided, however, That banks shall
ordinarily be permitted to offset any reserve deficiency occurring on one or
more days of the week with any excess reserves which they may hold on other
days of the same week and shall be required to pay the penalty only on the
average daily deficiency during the week. In cases of abuse, the Monetary Board
may deny any bank the privilege of offsetting reserve deficiencies in the
aforesaid manner.
If a bank chronically has a reserve deficiency, the Monetary Board may
limit or prohibit the making of new loans or investments by the bank and may
require that part or all of the net profits of the bank be assigned to surplus.
Section 107
Interbank settlements
The Central Bank shall provide facilities for interbank clearing.
The deposit reserves maintained by the banks in the Central Bank, in
accordance with the provisions of section 100, shall serve as a basis for the
clearing of checks and the settlement of interbank balances, subject to such
rules and regulations as the Monetary Board may issue with respect to such
operations.
ARTICLE IX
Selective Regulation of Bank Operations
Section 108
Guiding principle
The Monetary Board shall use the powers granted to it under the present
article and elsewhere in this Act to ensure that the supply, availability and
cost of money are in accord with the needs of the Philippine economy and that
the bank credit is not granted for speculative purposes prejudicial to the
national interests.
Section 109
Interest rates, commissions
and charges
The Monetary Board may fix the maximum rates of interest which banks
may pay on deposits and on any other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law
(Act No. 2655, as amended), fix the maximum rates of interest which banks may
charge for different types of loans and for any other credit operations, or may
fix the maximum differences which may exist between the interest or rediscount
rates of the Central Bank and the rates which the banks may charge their
customers if the respective credit documents are not to lose their eligibility
for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the
borrowing or lending operations of the banks shall apply only to future
operations and not to those made prior to the date on which the modification
becomes effective.
In order to avoid possible evasion of maximum interest rates set by the
Monetary Board, the Board may also fix the maximum rates that banks may pay to
or collect from their customers in the form of commissions, discounts, charges,
fees or payments of any sort.
Section 110
Margin requirements against
letters of credit
In order to restrict the granting of bank credit for purposes which are
contrary to the general welfare of the Philippines, the Monetary Board may at
any time prescribe minimum cash margins for the opening of letters of credit,
and may relate the size of the required margin to the nature of the transaction
to be financed.
The Board may particularly use its powers under this section to require
high margins for the opening of letters of credit to finance the importation or
luxuries or other non-essential goods, or to finance any goods the importation
of which at the time is considered by the Monetary Board to be unduly prompted
by speculative motives prejudicial to the interests of the Philippine economy.
Section 111
Required security against
bank loans
In order to promote the liquidity and solvency of the banking system,
or to influence the availability of bank credit for specific purposes, the
Monetary Board may issue such regulations as it may deem necessary from time to
time with respect to the maximum permissible maturities of the loans and
investments which the banks may make, and the kind and amount of security to be
required against the various types of credit operations of the banks.
Section 112
Portfolio ceilings
Whenever the Monetary Board considers it advisable to prevent or check
an expansion of bank credit, the Board may place an upper limit on the amount
of loans and investments which the banks may hold, or may place a limit on the
rate of increase of such assets within specified periods of time. The Monetary
Board may apply such limits to the loans and investments of each bank or to
specific categories thereof.
In no case shall the Monetary Board establish limits which are below
the value of the loans or investments of the banks on the date on which they
are notified of such restrictions. The restrictions shall be applied to all
banks uniformly and without discrimination.
Section 113
Minimum capital ratios
In order to regulate the volume and distribution of bank credit, and to
ensure the maintenance of bank capital and surplus at levels adequate to
protect the depositors against risk of loss, the Monetary Board may prescribe
minimum ratios which the capital and surplus of the banks must bear to the
volume of their assets, or to specific categories thereof, and may alter said
ratios whenever it deems it convenient so to do.
ARTICLE X
Government Credit Institutions as Instruments of the
National Monetary Policy
Section 114
Coordination of credit
policies
Government-owned corporations which perform banking or credit
functions are hereby declared to be instruments of the national monetary policy
and, accordingly, shall coordinate their general credit policies with those of
the Monetary Board.
Toward this end, the Monetary Board may, whenever it deems it
expedient, make suggestions or recommendations to such corporations for the
more effective coordination of their policies with those of the Central Bank.
CHAPTER V
FUNCTIONS AS FISCAL AGENT, BANKER AND FINANCIAL
ADVISOR OF THE GOVERNMENT
ARTICLE I
Functions as Fiscal Agent and Banker of the
Government
Section 115
Designation of Central Bank
as fiscal agent and banker of the Government
The Central Bank of the Philippines shall act as the fiscal agent and
banker of the Government, its political subdivisions and instrumentalities.
Section 116
Representation with the
International Monetary Fund
The Central Bank of the Philippines shall represent the Government of
the Philippines in all dealings, negotiations and transactions with the
International Monetary Fund and shall carry such accounts as may result from
Philippine membership in, or operations with, said Fund.
Section 117
Representation with other
financial institutions
The Central Bank may be authorized by the Government to represent it in
dealings, negotiations or transactions with the International Bank for
Reconstruction and Development and with other foreign or international
financial institutions or agencies.
Section 118
Official deposits
The Central Bank shall be the official depository of the Government and
its political subdivisions and instrumentalities: Provided, however, That the
Monetary Board may designate Government-owned banks and other banks incorporated
in the Philippines to accept deposits from said entities, subject to such rules
and regulations as the Board may prescribe.
Section 119
Fiscal operations
The Central Bank shall open a general cash account for the Treasurer of
the Philippines, in which the liquid funds of the Government shall be
deposited.
Transfers of funds from this account to other accounts shall be made
only upon order of the Treasurer of the Philippines.
Section 120
Other banks as agents of the
Central Bank
In the performance of its functions as fiscal agent, the Central Bank
may engage the services of the Philippine National Bank and of other domestic
banks for operations in localities at home or abroad in which the Central Bank
does not have offices or agencies adequately equipped to perform said
operations: Provided, however, That for fiscal operations in foreign countries,
the Central Bank may engage the services of foreign banking and financial
institutions.
Section 121
Remuneration for services
The Central Bank shall not charge for services which it renders to the
Government and to its political subdivisions and instrumentalities any rates,
commissions or fees.
The Bank shall not pay interest on deposits of the Government or of its
political subdivisions and instrumentalities.
ARTICLE II
The Marketing and Stabilization of Securities for
the Account of the Government
A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
Section 122
Issue of Government
obligations
The issue of securities representing obligations of the Government, its
political subdivisions or instrumentalities, shall be made through the Central
Bank, which shall act as agent of, and for the account of, the Government or
its respective subdivision or instrumentality, as the case may be: Provided,
however, That the Bank shall not subscribe to the issue of said securities and
shall not guarantee their placement.
Section 123
Methods of placing
Government securities
The Central Bank may place the securities to which the preceding
section refers through direct sale to financial institutions and the public,
through outright sale to syndicates, brokers or dealers for purposes of resale
to the public for their own account, or through brokers or banks contracted to
place the securities with the public for the account of the Central Bank.
The Central Bank shall not be a member of any stock exchange or
syndicate, but may intervene therein for the sole purpose of regulating their
operations in the placing of Government securities.
The Government, or its respective subdivisions or instrumentalities,
shall reimburse the Central Bank for the expenses incurred in the placing of
the aforesaid securities.
Section 124
Servicing and redemption of
the public debt
The servicing and redemption of the public debt shall also be effected
through the Central Bank.
B. CENTRAL BANK SUPPORT OF THE GOVERNMENT SECURITIES
MARKET
Section 125
The Securities Stabilization
Fund
There shall be established a "Securities Stabilization Fund"
which shall be administered by the Central Bank for the account of the
Government.
The operations of the Securities Stabilization Fund shall consist of
purchases and sales, in the open market, of bonds and other evidences of
indebtedness issued or fully guaranteed by the Government of the Philippines.
The purpose of these operations shall be to increase the liquidity and
stabilize the value of said securities in order thereby to promote private investment
in Government obligations.
The Monetary Board shall use the resources of the Fund to prevent, or
moderate, sharp fluctuations in the quotations of said Government obligations,
but shall not endeavor to alter movements of the market resulting from basic
changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary to
implement the provisions of this section.
Section 126
Resources of the Securities
Stabilization Fund
The resources of the Securities Stabilization Fund shall come from the
following sources:
(a) Two million (P2,000,000) pesos, which are hereby
appropriated from the assets of the Exchange Standard Fund, as provided in
section 134 of this Act, and such other appropriations as the Government may
make from time to time;
(b) That part of the annual net profits of the Central
Bank allocated to the Fund in accordance with the provisions of section 41;
(c) Profits arising from recoinage or from reductions in
the currency issue, under the conditions specified in section 45.
Section 127
Profits and losses of the
Fund
The Securities Stabilization Fund shall retain any net profits which it
may make on its operations, regardless of whether said profits arise from
capital gains or from interest earnings. The Fund shall correspondingly bear
any net losses which it may incur.
ARTICLE III
Functions as Financial Advisor of the Government
Section 128
Financial advice on official
credit operations
Before undertaking any credit operation abroad, the Government, through
the Secretary of Finance, shall request the opinion, in writing, of the
Monetary Board on the monetary implications of the contemplated action. Such
opinions must similarly be requested by all political subdivisions and
instrumentalities of the Government before any credit operation abroad is
undertaken by them.
The opinion of the Monetary Board shall be based on the gold and
foreign exchange resources and obligations on the nation and on the effects of
the proposed operation on the balance of payments and on the volume of the
money supply.
Whenever the Government, or any of its political subdivisions or
instrumentalities, contemplates borrowing within the Philippines, the prior
opinion of the Monetary Board shall likewise be requested in order that the
Board may render an opinion on the probable effects of the proposed operation
on the money supply, the price level, and the balance of payments.
Section 129
Representation on the
National Economic Council
In order to assure effective coordination between the economic,
financial and fiscal policies of the Government and the monetary, credit and
exchange policies of the Central Bank, the Governor of the Central Bank shall
be an ex-officio member of the National Economic Council.
CHAPTER VI
Privileges and Prohibitions
ARTICLE I
Privileges
Section 130
Tax exemptions
The Central Bank of the Philippines shall be exempt from all national,
provincial, municipal and city taxes and assessments now in force or hereafter
established.
The exemptions authorized in the preceding paragraph of this section
shall apply to all property of the Central Bank, to the resources, receipts,
expenditures, profits and income of the Bank, as well as to all contracts,
deeds, documents and transactions related to the conduct of the business of the
Bank: Provided, however, That said exemptions shall apply only to such taxes
and assessments for which the Central Bank itself would otherwise be liable,
and shall not apply to taxes or assessments payable by persons or other
entities doing business with the Central Bank.
Section 131
Exemption from customs
duties
The importation and exportation by the Central Bank of notes and coins,
and of gold and other metals to be used for purposes authorized under this Act,
and the importation of all equipment needed for furnishing, equipping and
operating the offices of the Bank, shall be fully exempt from all customs
duties and consular fees and from all other taxes, assessments and charges related
to such importation or exportation.
Section 132
Applicability of the Civil
Service Law
Appointment in the Central Bank, except as to those which are
policy-determining, primarily confidential or highly technical in nature, shall
be made only according to the Civil Service Law and Regulations.
Officers and employees in the Central Bank, including all members of
the Monetary Board, shall not engage directly or indirectly in partisan
activities or take part in any election except to vote.
No officer or employee of the Central Bank subject to the Civil Service
Law and Regulations shall be removed or suspended except for cause as provided
by law.
ARTICLE II
Prohibitions
Section 133
Prohibitions
The Central Bank shall not acquire shares of any kind or accept them as
collateral, and shall not participate in the ownership or management of any
enterprise, either directly or indirectly.
CHAPTER VII
TRANSITORY PROVISIONS
ARTICLE I
The Exchange Standard Fund
Liquidation of the Exchange Standard Fund
Prior to the date on which the Central Bank commences business, the
Exchange Standard Fund shall be liquidated. The net assets of the Fund
remaining after outstanding liabilities have been met shall be used for the
following purposes and in the following priority:
(a) Ten million (P10,000,000) pesos shall be used to
subscribe to the capital stock of the Central Bank;
(b) Two million (P2,000,000) pesos shall be transferred
to the Securities Stabilization Fund; and
(c) The remainder shall be transferred to the Bank in
accordance with the provisions of section 135.
ARTICLE II
Retirement of Treasury Certificates and Coins
Section 135
Assumption by the Central
Bank of the liability for treasury certificates
On the date on which the Central Bank commences business, it shall
assume the liability of the Treasury Certificate Fund for all outstanding
treasury certificates. The amount of the liability shall be determined by the
Secretary of Finance and certified by the Auditor-General. In consideration for
assuming this liability the Treasurer of the Philippines shall transfer to the
Bank all of the available assets of the Treasury Certificate Fund and that
portion of the assets of the Exchange Standard Fund which may remain after
deducting the amounts required to provide the capital of the Bank and the
contribution to the Securities Stabilization Fund, as provided in the preceding
section.
If the total assets thus transferred exceed the liability assumed, the
difference shall be used to establish a reserve on the books of the Central
Bank against the contingency that the actual amount of treasury certificates
which the Central Bank may be called upon to exchange for its own notes may
prove to be larger than the liability originally assumed. If the total assets
transferred should be less than the liability assumed, the Secretary of Finance
shall deliver to the Bank a non-interest bearing, non-negotiable note without
fixed maturity in the amount of the difference.
The Central Bank shall, as soon as practicable, exchange outstanding
treasury certificates for its own notes in accordance with the procedure
described in section 59 of this Act. During the period of such exchange any
treasury certificates exchanged by the Bank in excess of the liability
originally assumed for such certificates shall be charged, first, to the
reserve mentioned in the preceding paragraph, if there be such reserve, and,
second, to the deposit of the Government. At the expiration of the exchange
period any remaining balance of the liability account for outstanding treasury
certificates shall be applied, first, to reduce the face value of the note
delivered by the Secretary of Finance in accordance with the preceding
paragraph, if such a note has been issued, and, second, to reduce the Account
to Secure the Coinage, the creation of which is provided for in the following
section. Any remaining balance of the abovementioned reserve shall be applied
solely to reduce the Account to Secure the Coinage.
Section 136
Assumption by the Central
Bank of the liability for treasury coins
On the date on which the Central Bank commences business, the total
Philippine treasury coin issue, including coins dumped in Manila Bay but not
yet salvaged, shall become a liability of the Bank. As a contra item against
the liability thereby assumed there shall be set up on the books of the Central
Bank an asset account in an amount equal to the face value of the total
Philippine treasury coin issue. This account shall be called the "Account
to Secure the Coinage."
The Central Bank shall, as soon as practicable, exchange treasury coins
in circulation for Central Bank coins in accordance with the procedure
described in section 59 of this Act. When the Monetary Board has completed the
exchange of treasury coins for its own coins and has thereby determined the
precise amount of the liability which it originally assumed for the treasury coin
issue, the outstanding amount of the Account to Secure the Coinage shall be
reduced by the difference between the original amount of the Account and the
amount of the liability as finally determined.
ARTICLE III
Extraordinary Advances to the Government
Section 137
Extraordinary advances to
the Government
Notwithstanding any provisions in the present Act to the contrary, the
Central Bank may, until June 30, 1951, make direct advances to the Government
when, in the opinion of the Monetary Board, the international reserve is
adequate to meet all foreseeable demands upon it and when such advances are
consistent with the achievement of the Board's objective of domestic monetary
stability. The total advances made under the authority of this section shall
not exceed two hundred million (P200,000,000) pesos.
The Bank shall make the above advances only against an equivalent
amount of negotiable government securities having maturities which, insofar as
possible, are appropriate to the uses to which the advances will be put, but
which in no case shall exceed 15 years. In order to permit their resale by the
Central Bank, the securities shall be in denominations and bear interest rates
which will make them attractive to the banks and to the public.
Advances shall be made only for certain purposes specifically
authorized by law, and shall be made only for productive and income-producing
projects, or for the repayment or servicing of external obligations of the
Government.
ARTICLE IV
Miscellaneous Provisions
Section 138
Transfer of powers and
functions of the Bureau of the Treasury to the Central Bank
All powers, duties, and functions vested in the Bureau of the Treasury
and the Treasurer of the Philippines which by the provisions of this Act shall
be exercised by the Bank are hereby transferred to the Central Bank.
Section 139
Transfer of authority,
powers, and functions of the Bank Commissioner and the Bureau of Banking to the
Central Bank
All authority now vested in the Bank Commissioner and the Bureau of
Banking with respect to the establishment, operation or liquidation of banking
and credit institutions, and branches or agencies thereof, and all other
powers, duties and functions vested in the Bureau of Banking and Bank
Commissioner which by the provisions of this Act shall be exercised by the
Bank, are hereby transferred to the Central Bank.
Section 140
Repeal of inconsistent laws
All laws, parts of laws, and any special charters, or parts thereof, of
banking and financial institutions inconsistent herewith are hereby repealed.
Section 141
Exemption from restrictions
on bank borrowing
The restrictions on bank borrowing which are contained in sections 6
and 7 of Act 3610 shall not apply to bank borrowings from the Central Bank.
Section 142
Effectivity of this Act
This Act shall take effect upon approval. The Central Bank of the
Philippines shall commence business upon organization of the Monetary Board and
certification by the Secretary of Finance that the authorized capital of the
Bank has been fully paid-in and that the Bank is ready for operation.
Approved:
June 15, 1948
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