THE NEW CENTRAL BANK ACT

Case Overview and Summary

Summary of Republic Act No. 7653 (The New Central Bank Act):

Establishment and Organization of the Bangko Sentral ng Pilipinas (BSP):
- Creation of the BSP as an independent and accountable body corporate for monetary policy (Sec. 1-2)
- Responsibilities include price stability, monetary stability, and peso convertibility (Sec. 3)
- Capitalization of P50 billion, with P10 billion paid upfront (Sec. 2)
- Composition and appointment of the 7-member Monetary Board (Sec. 6-10)
- Powers and duties of the Governor and Deputy Governors (Sec. 17-21)
- Operating departments and auditor (Sec. 38, 47)

BSP and the Means of Payment:
- BSP has sole power to issue currency (notes and coins) in the Philippines (Sec. 49-50)
- Currency is legal tender and fully guaranteed by the government (Sec. 52)
- Characteristics, printing, and minting of currency (Sec. 53-54)
- Definition and issuance of demand deposits (Sec. 58-60)

Guiding Principles of Monetary Administration:
- Control monetary aggregates to maintain price stability (Sec. 61-63)
- Maintain international value and convertibility of the peso (Sec. 64-67)
- Take action when international reserves are inadequate (Sec. 67)

Instruments of BSP Action:
- Purchase and sale of gold and foreign exchange (Sec. 69-70)
- Regulation of banks' foreign exchange operations (Sec. 76-80)
- Lending operations, including rediscounts, discounts, and advances (Sec. 82-84)
- Open market operations in government securities and BSP obligations (Sec. 90-92)
- Bank reserve requirements and penalties for deficiencies (Sec. 94-103)
- Selective regulation of bank operations, e.g., margin requirements, loan security, portfolio ceilings, and capital ratios (Sec. 104-108)

Functions as Banker and Financial Advisor of the Government:
- Act as banker for the government, its subdivisions, and instrumentalities (Sec. 110)
- Represent the government in dealings with the IMF and other financial institutions (Sec. 111-112)
- Official depository and fiscal operations for the government (Sec. 113-116)
- Issue, place, and service government securities (Sec. 117-119)
- Securities Stabilization Fund to stabilize government securities (Sec. 120-122)
- Provide financial advice on government credit operations (Sec. 123-124)

Privileges and Prohibitions:
- Tax exemptions for the BSP for 5 years and customs duty exemptions (Sec. 125-126)
- Applicability of the Civil Service Law and prohibition on partisan activities (Sec. 127)
- Prohibition on acquiring shares or engaging in development banking (Sec. 128)

Transitory Provisions:
- Phase-out of fiscal agency functions and regulatory powers over finance companies within 3-5 years (Sec. 129-130)
- Transfer of assets and liabilities from the Central Bank to the BSP (Sec. 132)
- Reorganization and separation benefits for personnel (Sec. 133-134)
- Repealing of Republic Act No. 265 and other inconsistent laws (Sec. 135)
- Transfer of powers from the Central Bank to the BSP (Sec. 136)