AMENDED BSP CHARTER BOOSTS ITS CAPACITY TO PERFORM MANDATE

President Rodrigo R. Duterte signed into law “Republic Act No. 11211, or An Act Amending Republic Act No.

7653, Otherwise Known as the ‘New Central Bank Act,’ and for Other Purposes” on February 14, 2019.

According to the Bangko Sentral ng Pilipinas (BSP), “The amendments are intended to provide for a more effective and dynamic central monetary authority. The amended BSP Charter strengthens the Central Bank’s capacity to foster price stability, financial stability, and a safe and reliable payments system.”

Enhancing BSP’s capability to perform its mandate is ultimately aimed at enhancing the economic and financial well-being of Filipinos. Stable prices benefit all Filipinos by preserving their purchasing power and providing an enabling environment for stronger economic growth. A strong and stable financial system ensures efficient fund intermediation between savers and investors and sound risk management.

Moreover, a stable payments system supports financial inclusion by providing more unbanked Filipinos access to financial products and services. Financial inclusion is integral to broad-based economic growth that benefits all Filipinos.

Price Stability

R.A. No. 11211 provides for an enhanced policy framework for promoting price stability, which is manifested through low and stable inflation. In line with current international trends, the new law recognizes that there is a broader set of indicators, aside from monetary aggregates, that serves as a basis for the formulation of monetary policy. Under the inflation targeting framework, the BSP focuses mainly on achieving price stability, instead of targeting monetary aggregates, as the ultimate objective of monetary policy.

The law also restores the Central Bank’s authority to issue its own debt papers as part of its regular operations. This gives the BSP greater flexibility in determining the timing and size of its monetary operations and expands its policy toolkit.

Financial Stability

Moreover, R.A. No. 11211 establishes a stronger prudential regulatory framework to promote a safe and sound financial system; and explicitly identifies financial stability as a mandate of the BSP. An express financial stability mandate ensures that the Bangko Sentral can take direct action on vulnerabilities and mitigate systemic risks that may have systemwide impact, thus, further strengthening prudential oversight over the country’s overall financial stability. In this regard, the Central Bank works closely with the Department of Finance, Securities and Exchange Commission, Insurance Commission, and Philippine De

posit Insurance Corporation. Said law also widens the coverage of institutions under BSP supervision to include money service businesses, credit-granting businesses and payment system operators. This puts the BSP in a strategic position to address potential risks arising from the interlinkages within the financial system, and between financial institutions and service providers across instruments and markets. The law also authorizes the BSP to prescribe minimum risk-based capital adequacy ratios based on internationally accepted standards and practices.

Payment Systems Efficiency

Furthermore, R.A. No. 11211 empowers the BSP to oversee payment and settlement systems (PSS), including critical market infrastructures that are vital components of the country’s financial system.

This reform stems directly from the Central Bank’s role of fostering price and financial stability. As pipelines for the flow of funds, PSS are critical transmission channels for monetary policy and in mitigating systemic disruptions, ensuring the smooth flow of financial transactions and maintaining public confidence in the financial system.

Placing PSS under BSP supervision provides a holistic view for setting standards and for defining the operating environment in the financial system. The development of a safe and efficient national payment system that is crucial to price stability, financial stability and economic growth is a paramount objective of the BSP.

Corporate Viability

To enhance BSP’s corporate viability, R.A. No. 11211 authorizes the increase in the capitalization of the BSP from P50 billion to P200 billion, which shall be sourced from dividends declared by the BSP in favor of the National Government. Under the amended Charter, the BSP is also exempt from paying taxes on income derived from its governmental functions. These reforms place the BSP on a stronger position to pursue its mandate amid a growing economy and the increasing sophistication of the financial system.

Data Access

The amended BSP Charter restores the Central Bank’s authority to obtain data from any person or entity from the private and public sectors for statistical and policy development purposes in line with the pursuit of its mandates.