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Monetary policy involves adjusting liquidity to spur or curb economic growth, primarily through interest rates, reserve requirements, and government bond holdings.

Pursuant to the New Central Bank Act, the Bangko Sentral ng Pilipinas has the sole power and authority to issue currency, within the territory of the Philippines.

The Central Bank of the Philippines' Manual of Regulations for Banks (MORB) serves as the principal source of banking regulations issued by the Monetary Board and the Governor of the Central of Bank.

Monetary Policy: Central banks are entrusted with formulating and executing monetary policy, which involves regulating the money supply, interest rates, and credit conditions.

Currency Issuance and Management: Central banks exclusively issue currency and manage the country's monetary base, ensuring an adequate supply of currency while upholding its integrity and security.

Banking Supervision and Regulation: Central banks oversee and regulate the banking system, establishing standards and regulations to maintain stability and soundness.

Lender of Last Resort: During financial crises, central banks act as lenders of last resort, providing emergency liquidity support to banks and financial institutions to prevent widespread failures and maintain confidence in the financial system.

Foreign Exchange Management: Central banks manage foreign exchange reserves and intervene in currency markets to stabilize exchange rates and ensure orderly market conditions.

Contribution to Price Stability, Growth, and Market Integrity: Central banks strive to maintain price stability, promote sustainable economic growth, and ensure the integrity of financial markets through their policies and actions.

Financial Stability: Central banks prioritize safeguarding financial stability by preventing and mitigating financial crises, systemic risks, and disruptions in the banking sector through prudential regulations and oversight.

Concepts of Exchange Rates - The exchange rate is the price of a unit of foreign currency in terms of the domestic currency.

The exchange rate is important for several reasons:

● It serves as the basic link between the local and the overseas market for various goods, services and financial assets.

● Exchange rate movements can affect actual inflation as well as expectations about future price movements

● Exchange rate movements can affect the country’s external sector through its impact on foreign trade.

● The exchange rate affects the cost of servicing (principal and interest payments) on the country’s foreign debt.

How the Balance of Trade Affects Currency Exchange Rate

● The balance of trade (which reflects higher or lower demand for a currency) can affect currency exchange rates.

● A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency.

● A country that imports more than it exports will see less demand for its currency.

● Trade balances and, as a result, currencies can swing back and forth in value, assuming currencies are floating rather than fixed.

● Currencies that are fixed or pegged don’t move as easily as floating currencies in response to a trade imbalance.

During economic crises or recessions, the BSP employs various tools:

1. Interest Rate Adjustments: Lowering interest rates stimulates borrowing and spending, boosting economic activity.

2. Liquidity Provision: Providing liquidity to financial institutions ensures smooth operations and supports lending to businesses and consumers.

3. Regulatory Measures: Implementing measures to ease financial conditions and facilitate credit flows, such as relaxing lending standards or reserve requirements.

4. Currency Stabilization: Intervening in the foreign exchange market to stabilize the currency, maintaining investor confidence.

5. Communication and Guidance: Clear communication on policy intentions and economic outlook reduces uncertainty and supports confidence and stability.

6. Coordination with Fiscal Policy: Collaborating with fiscal authorities to implement comprehensive policy

responses combining monetary and fiscal stimulus measures.

BSP Vision

The BSP aims to be recognized globally as the monetary authority and primary financial system supervisor that supports a strong economy and promotes a high quality of life for all Filipinos.

BSP Mission

To promote and maintain price stability, a strong financial system, and a safe and efficient payments and settlements system conducive to a sustainable and inclusive growth of the economy

It shall be the responsibility of the BSP:

1. To provide policy directions in the areas of money, banking, and credit;

2. To supervise the operations of the banks and to exercise such regulatory and examination powers as provided under Republic Act No. 11211 (The New Central Bank Act, as amended) and other pertinent laws over the quasi banking operations of non-bank financial institutions;

3. To exercise regulatory and examination powers over money service businesses, credit granting businesses, and payment system operators.

Under the New Central Bank Act, the BSP performs the following functions, all of which relate to its status as the Philippines’ central monetary authority:

1. Liquidity management – The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective to maintain price stability.

2. Currency issue – The BSP has the exclusive power to issue the national currency. All notes and coins issued by the BSP are fully guaranteed by the government and are considered legal tender for all private and public debts.

3. Lender of last resort – The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.

4. Financial supervision – The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions.

5. Management of foreign currency reserves – The BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies in order to preserve the international stability and convertibility of the Philippine peso.

6. Determination of exchange rate policy – The BSP determines the exchange rate policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign exchange rate policy, principally to ensure orderly conditions in the market.