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BSP tries unconventional ways to central banking under a new governor

Year-ender

Updated

By LEE C. CHIPONGIAN

The Bangko Sentral ng Pilipinas (BSP) has a lot more focus thinking of unconventional ways to central banking since Benjamin E. Diokno – a name more familiar in the exercise of public or government budgeting – took over the helm as BSP’s fifth governor in 2019.

MB file

MB file

Dokno has said many times that under his watch, the BSP will be “closer to (the) people)” since the beneficiary of a successful BSP doing its mandate of promoting price and financial stability, as manifested in a low and stable inflation and financial services that are accessible to the public, are the Filipino consumers.

So far, so good. Inflation is expected to settle at 2.4 percent in 2019 and a stable 2.9 percent for 2020 and 2021, firmly in the middle ground of the two-four percent target until 2022. The 2.4 percent forecast for 2019 is more than half of what was reported at the end of 2018 of 5.2 percent.

As for further bringing BSP as an institution working for Filipinos, the BSP has set into motion reforms and regulatory changes that will make this happen sooner than planned. It continued to pursue the strengthening of the payments system through policies that will encourage financial technology solutions.

Diokno has recently announced that the 20 percent target of getting all transactions to shift to e-payments by 2020 has been surpassed, and he now targets 30 percent, and 50 percent of all payments transactions will go digital by the end of his term in 2023.

Amendments to the BSP Charter

Diokno was appointed the BSP’s fifth governor after the untimely death of Nestor A. Espenilla Jr., head of BSP for only 20 months, last February 23, 2019 after a long illness first announced in November 2017.

Espenilla was the BSP governor when the central bank’s amended constitution was approved and signed into a new law as Republic Act No. 11211, replacing RA No. 7653 of 1993, on February 14, 2019.

Diokno, the Duterte administration’s sitting budget chief, is the governor that will be implementing the new BSP Charter until his term ends in mid-2023.

“I must say that I joined the BSP during an exciting period in central banking history as I took my oath of office just a few weeks after the President (Rodrigo Duterte) signed RA No. 1211,” said Diokno. It took BSP 25 years to finally complete its charter amendment process that basically ensured it is more capable in obtaining price stability as well as financial stability, and to operate an efficient payments system.

Diokno said implementing the enacted law which will involve both institutional and banking-wide adjustments will be complex and will take more years than his term would allow.

The new charter improves the BSP’s corporate and financial viability. It has strengthened its monetary stability and financial supervision functions, and introduced financial reforms to be more proactive in crafting policies. Among the key new features: the increase in BSP’s capitalization from ₱50 billion to ₱200 billion to be sourced from dividends; restoration of tax exemptions; set up of a BSP Reserve Fund; and the restoration of its long lost authority to issue its own securities to be able to manage liquidity and inflation better.

Diokno said that the amendments to the BSP law not only improved its capability to do its mandate but also strengthened the country’s gross international reserves and the Islamic banking system.

Implementation
of other recently enacted laws

With RA No. 11211 which put the BSP in a much, much stronger position as the country’s central monetary authority, the BSP also has the mandate to oversee the domestic payment systems after the National Payment Systems Act was approved. It will not only ensure a reliable payment system, this will also reduce the cost of exchanging goods and services in the country.

RA No. 11256 (An Act to Strengthen the Country’s Gross International Reserves) or the “Gold Law” was also approved in March. This law will create more opportunities for the BSP to increase its GIR since it exempts the sale of gold to the BSP from the excise and income tax.

Retired BSP official and former Deputy Governor, Diwa C. Guinigundo, said that using US dollars to buy gold from the world market would “rebalance the foreign exchange reserve composition from US dollar to gold.” The Gold Law will also enable the BSP to increase its gold purchases and at the same time, discourage gold smuggling, he added. At $86 billion, the country’s buffer fund is composed of about $8 billion gold reserves.

Guinigundo, who was in charge of pursuing that much-desired “A” credit rating for the Philippines before his retirement last July, said the Gold Law is a sovereign credit rating positive and will help raise the country’s debt ratings. An increase in BSP’s gold purchases using pesos leads to a net increase in the GIR, thereby improving the country’s economic standing and lowering the cost of both funding for the government as well as doing business for the private sector.

The Islamic Banking Law or RA No. 11349 signed last August, is another law that Diokno finds opportunities to increase the country’s foreign direct investments as the entry of Islamic Banks will encourage more foreign bank investments in the Philippines. Globally, Islamic finance is worth about $2 trillion. Islamic funds are invested in Sukuk bonds and Halal sectors, among others.

Diokno said this law will also “unlock the full potential of Islamic financing in fostering inclusive economic growth” and therefore expand financial inclusion.

‘Within reach’

The BSP recently published a year-ender summary report for 2019 which stressed on this central bank’s focus of making the BSP that much closer to every Filipino, particularly the poor and low-income households. It’s become Diokno’s mantra.

“We will intentionally bring the BSP closer to the people,” said Diokno in July. “A central bank cannlot operate from an ivory tower.”

The BSP’s mandate of ensuring an efficient payments and settlements system is perhaps one of the most visible aspects of financial inclusion that the BSP has been actively pursuing for a long time. In fact in Asia, the BSP and the Philippines leads all other nations in the region in terms of promoting financial inclusion.

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