About time the BSP charter is amended (Part 3)

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By Atty. Ignacio R. Bunye

Speaking Out

Sunday, August 17, 2014


IN TWO previous articles, we started identifying key proposed amendments to the 21-year-old Bangko Sentral Charter (RA 7653) and the rationale for such amendments.

We stated that the proposed amendments, submitted by no less than House Speaker Feliciano Belmonte Jr. (co-authored by Rep. Nelson P. Collantes) and Senate President Franklin M. Drilon, seek to further strengthen the Bangko Sentral’s 1.) Monetary Stability Function 2.) Financial Stability Function, and 3.) Corporate and Financial Viability.

In this article, allow me to explain other amendments insofar as they affect the BSP’s monetary stability function. These proposals seek to improve the formulation of monetary policy, the implementation of monetary policy and the credibility of monetary policy.

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Just to recap, monetary policy is the collective term that refers to measures and actions adopted by the BSP to influence not only the level of money supply but also the timing, the cost and availability of money and credit.

To the credit of the sponsors of the amendments, they have recognized that in the conduct of monitory policy, the Bangko Sentral needs access to accurate, relevant, reliable, comprehensive and timely information.

Thus, one of the proposed amendments seeks to restore to the Bangko Sentral a power once enjoyed by the old Central Bank, i.e., the power to require (not just request) data and information not only from the banking sector but also from the non-bank private sector.

In a briefer prepared by Ms. Raquel Claveria of the BSP’s Office of the Deputy Governor-Monetary Stability Sector, Ms. Claveria made the observations that:

“…this is the practice followed by a number of central banks, among them, the central banks in Indonesia (Bank Indonesia), Malaysia (Bank Negara Malaysia), South Korea (Bank of Korea), Singapore (Monetary Authority of Singapore), Taiwan (Central Bank of China - Taiwan), Thailand (Bank of Thailand), Cambodia (National Bank of Cambodia), the European Central Bank, Spain (Banco de Espana) and Germany (Deutsche Bundesbank).

This proposal has practical basis. Ms. Claveria explained: “Without the legal authority to obtain data from non-bank entities, the BSP is limited to gathering information through other means such as surveys or administrative reports. While these volunteered information is most useful, it is less than ideal.”

If this authority is granted, the BSP will have access to “more comprehensive data from the private sector resulting in improved policy making, forecasting, assessment of the economic environment, and the implementation of a forward-looking monetary policy framework.”

Needless to say, the BSP assures that information it receives will strictly be treated as privileged communication and handled in accordance with existing rules on confidentiality.

We mentioned in a previous article the importance of the proposed restoration to the Bangko Sentral - an authority previously granted to the former Central Bank of the Philippines - of the authority to issue its own certificate of indebtedness without any restrictions.

Ms. Claveria points out that this is the practice followed by many central banks. Among them are the following: Bank of Indonesia (Bank Indonesia Certificates), Bank Negara Malaysia (BNM Bills), Bank of Korea (Monetary Stabilization Bonds), Central Bank of China - Taiwan (Negotiable Certificates of Deposits), Bank of Thailand (BOT bonds), Sveriges Riksbanks [Royal Bank of Sweden] (Sveriges Riksbank Securities) and the Monetary Authority of Singapore (Singapore Government Securities).

The use of BSP’s own debt securities to conduct open market operations will allow the BSP “to better calibrate the size of its monetary operations to levels that will bring short-term money market interest rates in line with its policy interest rate and influence liquidity in the financial system. In other words, this will provide the BSP greater flexibility in the timing and magnitude of its monetary operations and allow it to transmit policy objectives more clearly.”

We also mentioned in a previous article the urgent need to increase the capitalization of the Bangko Sentral. This proposal, if adopted, will definitely strengthen the corporate and financial viability of the Bangko Sentral. From another perspective, it will also enhance the credibility of BSP monetary policy.

Ms. Claveria concluded: “Many of the important policy actions that the BSP needs to undertake in support of its mandate and core functions (such as engaging in open market operations, participating in the foreign exchange market, acting as lender of last resort) may generate substantial losses.

“A strong balance sheet would enable the BSP to make the necessary monetary policy decisions without being unduly constrained by concerns over its financial position.”

Opinion

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