The Bangko Sentral ng Pilipinas (BSP) will not take any chances as it pushes for the immediate payment of its full capitalization under the proposed revisions to its 20-year-old charter.
This will avoid a repeat of the regulator’s experience where the Bangko Sentral had to wait several decades before its capital was fully paid up, jeopardizing its ability to maintain the stability of consumer prices and the health of the financial system.
BSP Deputy Governor Diwa C. Guinigundo said that under proposed amendments to its charter, the Department of Finance would be given the option to pay the monetary authority either in cash or in the form of government securities.
“There are so many enabling laws in the country, but many of them are incomplete because there is no appropriation,” Guinigundo said, citing several laws that required funding but did not specify where the money should come from.
He said the current central bank charter—Republic Act 7653 passed in 1993—had the same deficiency.
“We are avoiding that. What we will do is to ensure that this is given by the government in the form of securities immediately,” Guinigundo said.
He said proposals for amendments to the BSP’s charter, which are pending in Congress, call for an increase in the central bank’s capitalization by P150 billion to P200 billion. The proposed charter amendments were drafted by lawmakers with the help of the BSP.
If passed, the proposal would allow the government to pay the BSP completely in the form of treasury bills or bonds.
“We can use these government securities as collateral for our open market operations,” Guinigundo said, referring to the BSP’s participation in the foreign exchange market in its bid to stabilize the peso’s value.
Guinigundo said that using securities would present the least financial strain for the government because this would not entail any big cash outlay.
The additional capital, he said, was needed given the size of the economy, which has grown “many times over” since 1993. “There’s a cost to promoting stability in the economy. We have to absorb capital flows and ensure levels of domestic liquidity are consistent with price stability and economic growth,” he added.
Under the current charter, the BSP was supposed to have P50 billion in paid-up capital. After an initial P10 billion in capital, the BSP was forced to wait 20 years before the remaining amount was paid up. The BSP was fully capitalized only early this month.
Other proposed amendments to BSP charter include certain tax exemptions, the ability to issue its own debt securities and enhanced legal protection for bank examiners.