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Origin of the Philippine central bank

(Part I)

Published

Atty. Jun de Zuñiga

Atty. Jun de Zuñiga

Last January 3 of this year, the country celebrated the 70th anniversary of central banking in the Philippines. This article, together with the succeeding one, will give a synopsis of the origin of central banking in the Philippines which I traced in my treatise on “The Legal Framework of Central Banking” (Central Banking in Challenging Times, published by the Bangko Sentral ng Pilipinas, 2009).

In 1934, the Philippine Economic Association, led by Elpidio Quirino, former senator and who became also Secretary of Finance, published its proposal for a national economic program which included the creation of a central bank. In 1939, the Philippine Commonwealth drafted a bill, under the initiative of then Secretary of Finance Manuel A. Roxas, for the establishment of a central bank. However, this bill did not see fruition. Subsequently, World War II set in and the Philippines was placed under Japanese occupation until the arrival of American liberation forces in 1944.

When Manuel A. Roxas was inaugurated President of the Philippines in 1946, he again showed commitment to establish a central bank. He instructed his then Finance Secretary, Miguel Cuaderno, Sr. to draw up its charter. Mr. Cuaderno, who was to became the first central bank governor, chaired the six-member Joint Philippine-American Finance Commission. The Philippine section of the Commission was composed of Miguel Cuaderno, Vicente Carmona and Pio Pedrosa. Its Technical Staff included Andres Castillo, Eduardo Romualdez, Amado R. Briñas and Gregorio S. Licaros.

In its report, the Commission stated that domestically-owned banks were disadvantaged under then existing banking laws and that the monetary system in place was unsuitable for an independent Philippines. The Commission concluded that a central bank was necessary to address these issues. The report also outlined monetary, fiscal and trade programs for the recovery and development of post-war and newly independent Philippines.

A Central Bank Council was then created by President Roxas to prepare the charter of the proposed monetary authority. The Council was chaired by Miguel Cuaderno. Its members were Jose Yulo, Vicente Carmona, Delfin Buencamino and Alfonso Calalang. The council prepared a draft which was submitted to Congress in February 1948. The explanatory note of the bill stated that the proposed charter’s significance to the economic life of the nation compares with the significance of the Constitution to the country’s political life. In other words, the bill was to become the country’s economic magna carta.

Congress passed the bill and President Roxas’ successor, President Elpidio Quirino, signed Republic Act No. 265 on June 15, 1948. Opening for business on January 3, 1949, the Central Bank of the Philippines was headed by Miguel Cuaderno, as its first Governor, and he brought into the institution the earliest team of economists, finance, statistics and accounting specialists which included Sixto Roxas, Alfonso Calalang, Andres Castillo and Leonides Virata (Yusuke Takagi, Central Banking as State Building, pp. 94-95).

In his message at its inauguration, President Quirino affirmed the view of the Central Bank being the symbol of independence and a locomotive for industrialization and “a challenge to our ingenuity as a people and an opportunity to show our creative faith in our economic future” (Yusuke Takagi, ibid., p. 93). Thus, the Central Bank of the Philippines was born and it continued to function until the New Central Bank Act, which created the now Bangko Sentral ng Pilipinas, became effective on July 3, 1993 as Republic Act No. 7653.

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The above comments are the personal views of the writer. His email address is jzuniga@bsp.gov.ph

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