President Rodrigo Duterte signed into law Republic Act No. 11211 which increases the capitalization of the Bangko Sentral ng Pilipinas from P50 billion to P200 billion and expands its regulatory powers.
The ‘New Central Bank Act’ amended Republic Act No. 7653 or the BSP Charter to strengthen the capacity of the regulator to foster price and financial stability.
BSP Governor Nestor Espenilla Jr., in a statement over the weekend, acknowledged the support of the Office of the President, the Senate and the House of Representatives in passing the law that bolsters the BSP’s capability to promote the stability of prices and the financial system.
“The amendments to the BSP Charter are both timely and attuned to a fast-evolving market landscape,” Espenilla said.
“We also recognize the efforts of central bankers who began spade work on this legislative initiative some 20 years ago. Under our new Charter, we will continue to build on the central bank’s rich institutional experience under BSP’s Continuity Plus-Plus program,” he said.
The new BSP Charter embodies a package of reforms to align its operations with global best practices, improve the BSP’s corporate viability and enhance its capacity for crafting proactive policies amid rising interlinkages in the financial markets and the broader economy.
The law removes money supply and credit levels as among the bases for determining monetary policy. The focus on these indicators has declined among central banks over the years, as fostering price stability now considers a broader set of indicators.
RA 11211 also restored the central bank’s authority to issue debt papers as part of its regular operation. This gives the BSP greater flexibility in determining the timing and size of its monetary operations.
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 widens the coverage of institutions under BSP supervision to include money service businesses, credit granting businesses and payment system operators.
This put the BSP in a strategic position to address potential risks arising from the linkages of banks and these financial entities.
The law authorizes the increase in BSP’s capitalization from P50 billion to P200 billion, which will be sourced from dividends declared by the BSP in favor of the national government.
Under the new BSP Charter, the BSP is also exempt from taxes on income derived from its governmental functions. These reforms placed the BSP in a stronger position to pursue its price and financial stability mandate amidst a growing economy and the increasing sophistication of the financial system.
Together with Republic Act No. 11127 or the ‘The National Payment Systems Act’ which fosters the efficiency of domestic financial transactions, the new BSP charter provides the central bank with an enhanced legal and regulatory framework in providing a steadying hand to the financial system.
“With this law, the BSP shall pursue its mandate with renewed vigor and a clear view that price and financial stability ultimately supports the economic well-being of all Filipinos,” Espenilla said.