Speech of MBM Ignacio R. Bunye before the Kiwanis Club of Muntinlupa
(24 September 2009)

It is my pleasure to discuss with you tonight a subject that has kept me occupied for the last 14 months since I left Malacañan last year.

Having served for 6 years as President Arroyo's Press Secretary and Presidential Spokesperson, I felt that it was time to move on. I requested the President for a change in assignment. The opportunity presented itself on July 3, 2008 and so I accepted an appointment at the Bangko Sentral's Monetary Board.

Banking is not entirely new to me. Some of you may recall that before my career made an unexpected detour in 1986, I was working with Bank of the Philippine Islands. I was connected first with the BPI's Treasury Department and subsequently with Corporate Finance.

I joined the Monetary Board during an exciting period. During the second half of last year, the financial turmoil in the United States just about started. The 150 year old Lehman Brothers group folded up and several other unlikely financial institutions followed in its wake. Here at home, the Bangko Sentral closed a number of rural banks, collectively called The Legacy Group, which was run by the scam artist Celso de los Angeles.

The Monetary Board is the BSP's policymaking body. It promulgates monetary policy and supervises the financial system.

During my brief presentation this evening, I intend to cover four areas:

The history of central banking in the Philippines, the primary objectives of the BSP, the BSP's other roles and functions, and lastly, its BSP's key advocacies.

The birth of central banking in the country is actually related to the birth of the Philippines as an independent nation.

When then President Manuel Roxas assumed office in the wake of World War II, he instructed Finance Secretary Miguel Cuaderno to draw up a charter for a central bank.

Secretary Cuaderno was the head of the Joint Philippine-American Finance Commission, which examined the country's financial, monetary and fiscal problems in 1947.

The Commission recommended the creation of a central bank to implement the needed shift from the dollar exchange standard to a managed currency system.

The passage of Republic Act No. 265 or the Central Bank Act of 1948 was a very auspicious development for the Filipino people.

The Central Bank, under Governor Cuaderno, immediately set out to allocate scarce resources to priority sectors amid the crippling devastation brought about by the war.

Over the years, the Central Bank underwent several changes to make it more responsive to the evolving needs of the economy.

In 1993, the Bangko Sentral ng Pilipinas was established by Republic Act No. 7653, which is known as the New Central Bank Act.

The BSP and the Monetary Board are substantially independent from the national government. While under the old Central Bank, all of the members of the board were members of the cabinet, and hence alter egos of the President, under the New Bangko Sentral, majority of the members of the board come from the private sector.

The Bangko Sentral's main responsibility is to formulate and implement policy in the areas of money, banking and credit, with the objective of maintaining stable prices conducive to balanced and sustainable economic growth in the Philippines.

The BSP also aims to promote and preserve the stability of banks and the financial system.

The BSP formulates and implements appropriate and timely monetary policy to ensure that prices of basic goods and services are kept in check. In other words, a primary concern of the BSP is to check inflation.

As we all know, inflation refers to the general increase in prices and the corresponding fall in the purchasing value of money. The higher the inflation rate, the lower the purchasing value of money.
The BSP's commitment to price stability is vital in preserving the purchasing power of the citizens, especially pensioners and senior citizens like the members of the Kiwanis Club of Muntinlupa.
The Bangko Sentral supervises and examines banks and financial institutions to ensure that they remain healthy for the benefit of the depositing public.

And lastly, the BSP also maintains and operates a payment system to facilitate orderly and efficient settlement transactions.

To maintain price stability, the BSP devises monetary policies through which it influences the amount of money circulating in the system.

The BSP uses monetary policies to ensure that there is enough money for people and institutions to engage in economic activities, keeping in mind also that too much money could lead to inflation.

The rule of thumb is too much of everything can be bad. Hence we are always on the lookout for the proper mix.

For instance, if the BSP thinks that there is too much money in the system, the BSP may decide to "tighten" monetary policy.

"Tightening" monetary policy means restricting the availability of credit and the flow of money among banks and its clients.

One method of tightening is by increasing interest rates. This tends to make credit more expensive, discourage people to borrow. Thus the money stays in the banking system and out of general circulation.

In a reverse situation, where the economy is experiencing a slowdown , the BSP may choose to "loosen" monetary policies to stimulate economic activities. Again, one method of accomplishing this objective is by reducing interest rates.

These rate reductions will bring down the cost of borrowing, encouraging borrowing, which hopefully is put to productive use. The reduced rates will also ease the financial burdens on firms and households.

Further, lower policy rates enhance business and consumer confidence that should kick up the momentum for economic expansion.

The Monetary Board also ensures the general health of the banking system.

This is done by conducting examinations and regular investigations to determine if banks and financial institutions comply with laws and regulations, to verify whether an institution is conducting its business safely and soundly, and to assess the general performance and condition of financial institutions.

The Monetary Board is empowered to impose disciplinary measures against erring institutions including closure, if warranted. By the same token, the Monetary Board gives incentives and regulatory reliefs to encourage small banks to grow through mergers and acquisitions.

The BSP also maintains an effective payments and settlements system.

The BSP owns and operates a real time gross settlement system called the Philippine Payments and Settlements System (PhilPaSS).

The PhilPaSS enables the high-value payment transactions between banks through the deposit accounts which banks maintain with the BSP. Practically all the universal banks, commercial banks, thrift banks and some rural banks are now members of the PhilPass. Recently, the Philippine Finance Association likewise signed up for membership in the PhilPass.

Under the system, banks and other financial institutions could settle their payments in real time by simply sending electronic messages to the BSP , instructing the central monetary authority to debit their account with the BSP and credit the account of the payee bank.

An efficient payments system allows for safe and timely completion of transactions among banks.

It also helps in mitigating the risk of fraudulent transactions as well as prevents the execution of erroneous payments.

Aside from its main functions, the BSP has other roles.

The BSP has the exclusive authority to issue the Philippine Peso.

All notes and coins issued by the Bangko Sentral ng Pilipinas are fully guaranteed by the national government and can be used either for purchase transactions or payment of private and public debts.

The BSP also serves as an advisor to the National Government on matters of borrowings, as well as acts as the national government's official depositary bank.

The BSP also keeps foreign currency reserves to make sure that the Philippines has enough foreign currency to meet its obligations such as debts from foreign lenders.

International standards require countries to maintain foreign exchange reserves equivalent to at least 3 months of imports. Our gross international reserves now stand at over 41 Billion US Dollars. At this level, we have sufficient funds to pay for the equivalent of 7 months of imports!

As part of our mandate to keep prices stable, the BSP is an active player in the foreign exchange market, ensuring the market's orderly operations and preventing extreme movements of foreign exchange prices.

Finally, the BSP serves as a "lender of last resort" to financial institutions that may be in need of emergency financial assistance to continue operations and to serve their depositors.

Having tackled BSP's primary responsibilities, I will now discuss the BSP's advocacies.

The BSP is deeply involved in various projects and activities aimed toward alleviating poverty, contributing to the global fight against money laundering, increasing transparency of monetary policy, and improving the financial literacy of the public.

The BSP has declared microfinance as its flagship program for poverty alleviation in Year 2000 and has since then played a key role in the development of sustainable microfinance in the country.

The BSP microfinance initiatives have focused on the policy and regulatory environment, training and capacity building as well as promotion and advocacy.

An important initiative is the launching of the Credit Surety Fund, which provides a credit enhancing mechanism which allows small and medium borrowers to borrow from banks without need of collateral.

In order to implement its continued commitment in support of the global fight against money laundering, the BSP worked for the passage of the Anti-Money Laundering Act and issued a number of measures to bring the Philippines' regulatory regime on money laundering closer to international standards.

The BSP has also embarked on a consumer education program that aims to improve the basic financial literacy of the public. The BSP is actively involved in promoting lessons in savings, money management, and investments to help more Filipinos benefit from opportunities which development brings and to protect them from getting victimized by scams.

The BSP, together with the Philippine Deposit Insurance Corporation or PDIC, recently launched a campaign to further protect banks' depositors and educate them of the ways they can safeguard their hard-earned money.

The project, called the "Know Your Bank Campaign," teaches the basic tenets of safe and responsible banking to ordinary Filipinos.

Through their efforts to educate the public, the BSP, PDIC, and other bank organizations are performing their indispensable role of promoting stability in the banking system.

The BSP undertakes various bank-related initiatives to improve the remittance environment and to channel remittances to productive undertakings.

Through these initiatives, the BSP intends to maximize the benefits of remittances aimed at:
o Ensuring the smooth inflow of remittances, and
o Promoting their use for development by channeling them to the financial sector so that these funds can be used for lending and other productive activities

I hope that my presentation this evening was able to underscore the important role the BSP plays in the Philippine economy.

Through its financial education projects, the BSP hopes to partner and work hand in hand with all Filipinos.

Together, we hope to achieve the BSP's vision of becoming both a world-class monetary authority and a catalyst for a globally competitive economy that will deliver a high quality of life for all of us.

Salamat at mabuhay tayong lahat!

back to top