Perception in the Management of Demonetization of the

Philippine Currency of BSP Lucena

A Written Report
Presented to
Dr. Edwin Malabuyoc
Open University System
Polytechnic University of the Philippines
Unisan, Quezon

In Partial Fulfillment
Of the Requirements for the Degree
Master in Public Administration

By:

Dinah M. Simon

January 2018
 Chapter 1

Introduction

Demonetization of the Old Banknote Series

Demonetization is the process by which a central bank removes the monetary
value of a legal tender currency it issues. Demonetized currencies are no
longer accepted as payment for goods and services.

The process of demonetization is widely practiced throughout the world, though

reasons for demonetizing can be varied. Among the common reasons are the
following:

 The prevention of counterfeiting

 Benchmarking with other countries
 A change in the type or form of government
 A change in the type of currency as part of political or social reform
 Redefining the value of money in response to hyperinflation
 Shift to a single design series of currency in countries where more than
one series are in circulation

The BSP is demonetizing the old banknote series as a way to safeguard the
integrity of our currency. As a matter of practice, central banks around the world
change the design of their currencies that have been in circulation for over 10
years. In the case of the Philippines the old banknote series, introduced in 1985
or 30 years ago, is being replaced by the New Generation Currency (NGC)
series which was launched in 2010.

Demonetization is within the BSP’s jurisdiction as stated in RA No. 7653, or

The New Central Bank Act.

The Bangko Sentral may call in for replacement of notes of any series or
denomination which are more than five (5) years old and coins which are more
than ten (10) years old. Notes and coins called in for replacement in
accordance with this provision shall remain legal tender for a period of one year
from the date of call. After this period, they shall cease to be legal tender but
during the following year, or for such longer period as the Monetary Board may
determine, they may be exchanged at par and without charge in the Bangko
Sentral and by agents duly authorized by the Bangko Sentral for this purpose.
After the expiration of this latter period, the notes and coins which have not
been exchanged shall cease to be a liability of the Bangko Sentral and shall be
demonetized. The Bangko Sentral shall also demonetize all notes and coins
which have been called in and replaced.

Background of the Study

Confide

The BSP's Organizational Structure as of 23 January 2017

 Executive Management Services– a collective term for all departments/offices

directly reporting to the Monetary Board or to the Governor
 Functional Sectors
o Monetary Stability Sector- mainly responsible for the
operations/activities related to monetary policy formulation and
implementation
o Supervision and Examination Sector– mainly responsible for the
regulation of banks and other BSP-supervised financial institutions
o Resource Management Sector– mainly responsible for the management
of human, financial, and physical resources of the Bank
o Security Plant Complex– responsible for the production of Philippine
currency, security documents, and commemorative medals and
medallions

The Resource Management Sector

1. Provident Fund Office
 Administers the Provident and Housing Funds, and implements policies and
directives of the Provident Fund’s Board of Trustees
 Manages the Funds’ investment portfolio and its earnings
2. Business Continuity Office
 Serves as the BSP’s technical advisor on matters pertaining to business
continuity management, and coordinator for the Deputy Governor for RMS and
SPC, in ensuring immediate action by appropriate responding units for the
smooth implementation of existing plans and procedures
3. Payments and Settlements Office
 Ensures the smooth flow of the country’s payments and settlements system
through the management of the Philippine Payments and Settlements Systems
or PhilPaSS
Management Services Sub-sector
1. Administrative Services Department
 Responsible for property control, insurance of real and movable properties,
warehousing, records management, printing of bank circulars/internal
issuance/forms, mail distribution, and telephone switch board operations
2. Facilities Management and Engineering Department
 Responsible for the general upkeep of the BSP main building complex and
premises
 Responsible for the operations and maintenance of all mechanical, electrical,
electronic, and auxiliary/accessory equipment systems of the Bank
3. Project Development and Management Office
 Supervises the construction and renovation of offices and buildings in the BSP
Main Office, Security Plant Complex, and BSP Regional Offices/Branches, and
the maintenance of the Philippine International Convention Center
4. Procurement Office
 Processes purchase requisitions from departments/offices
 Assists the Bids and Awards Committee – Head Office in the conduct of
procurement activities
5. Security, Investigation and Transport Department
 Protects and safeguards the Bank’s human, financial, and physical resources,
and manages the Bank’s motor pool

Comptrollership Sub-sector
1. Budget Planning and Special Studies Group
 Serves as technical staff of the BSP Budget Committee in the formulation of
budget guidelines, preparation of budget forms, and dissemination of
information
 Reviews and analyzes budgetary estimates of income and expenses submitted
by the sector heads
2. Financial Accounting Department
 Responsible for the accounting, bookkeeping, budget administration, and
disbursement activities of the Bank

Human Resource Sub-sector

1. Human Resource Development Department
 Manages the development of the Bank as an organization and its human capital
through organizational change and development, and organizational planning
and staffing
 Facilitates the attainment of individual employees’ goals and those of the Bank
through talent development, career and succession management, and
performance management
2. Human Resource Management Department
 Provides human resource services including recruitment, appointment,
personnel selection and placement, compensation and benefits, payroll, leave
and retirement, and employee relations
 Promotes employee welfare through wellness programs/initiatives and other
employee services
3. Bangko Sentral ng Pilipinas Institute
 Acts as the training arm of the BSP
 Designs and administers various executive development/values enhancement
courses, seminars or workshops for personnel of the BSP as well as personnel
of certain segments of the financial system on a continuing basis
4. Health Services Office
  Provides medical and dental services to the employees, and, if necessary, refers
them to external professionals for consultations and medical and dental
attention

Information Technology Sub-sector

1. Information Technology Enterprise Security Group
 Designs, implements, and maintains an effective security infrastructure for the
BSP, and enforces IT security policies
2. Policy Standards and Planning Group
 Establishes, monitors, and updates specific standards in the acquisition,
development, and implementation of application systems, software, hardware,
and other IT projects
3. Information Technology Infrastructure and Operations Department
 Manages the computer environment of the Bank, and ensures the efficient
operation of all communication and technology infrastructure
4. Application Systems Management Department
 Develops and maintains appropriate business or application software in the
Bank

External Relationship of BSP

Objectives
The BSP’s primary objective is to maintain price stability conducive to a balanced and
sustainable economic growth. The BSP also aims to promote and preserve monetary
stability and the convertibility of the national currency.

Responsibilities
The BSP provides policy directions in the areas of money, banking and credit. It
supervises operations of banks and exercises regulatory powers over non-bank
financial institutions with quasi-banking functions.
Under the New Central Bank Act, the BSP performs the following functions, all of
which relate to its status as the Republic’s central monetary authority.
 Liquidity Management. The BSP formulates and implements monetary policy
aimed at influencing money supply consistent with its primary objective to
maintain price stability.
 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.
 Lender of last resort. The BSP extends discounts, loans and advances to
banking institutions for liquidity purposes.
 Financial Supervision. The BSP supervises banks and exercises regulatory
powers over non-bank institutions performing quasi-banking functions.
 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.
 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 such that the role of Bangko Sentral is principally
to ensure orderly conditions in the market.
 Other activities. The BSP functions as the banker, financial advisor and official
depository of the Government, its political subdivisions and instrumentalities
and government-owned and -controlled corporations.

Description of the Organization

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines. It was established on 3 July 1993 pursuant to the provisions of the 1987
Philippine Constitution and the New Central Bank Act of 1993. The BSP took over from
the Central Bank of Philippines, which was established on 3 January 1949, as the
country’s central monetary authority. The BSP enjoys fiscal and administrative
autonomy from the National Government in the pursuit of its mandated
responsibilities.
The BSP Main Complex in Manila houses the offices of the Governor, the Monetary
Board and the different operating departments/ offices. The Complex has several
buildings, namely: 5-Storey building, Multi-storey building, the EDPC building and the
BSP Money Museum, which showcases the Bank's collection of currencies.

The Security Plant Complex which is located in Quezon City houses a banknote printing
plant, a securities printing plant, a mint and a gold refinery. The banknote printing plant
and the mint take care of producing currency notes and coins, respectively.

The BSP has three regional offices performing cash operations, cash administration,
loans and rediscounting, bank supervision and gold buying operations. These regional
offices are located in La Union, Cebu City and Davao City.

There are also 18 BSP branches situated in Batac (Ilocos Norte), Tuguegarao City
(Cagayan), Dagupan City (Pangasinan), Cabanatuan City (Nueva Ecija), Angeles City
(Pampanga), Lucena City (Quezon), Naga City (Camarines Sur), Legazpi City (Albay),
Dumaguete City (Negros Oriental), Bacolod City (Negros Occidental), Iloilo City (Iloilo),
Kalibo (Aklan), Tacloban City (Leyte), Cagayan de Oro City (Misamis Oriental), Ozamiz
City (Misamis Occidental), Cotabato City, General Santos City (South Cotabato) and
Zamboanga City (Zamboanga del Sur). They perform cash operations, cash
administration, and in certain areas, gold buying operations.

World View
The BSP is deeply involved in various projects and activities aimed towards alleviating
poverty, contributing to the global fight against money laundering, increasing
transparency of monetary policy and improving the financial literacy of the public.
 The BSP has declared microfinance as its flagship program for poverty alleviation
in Year 2000 and has since then played a key role in the development of
sustainable microfinance in the country. The BSP initiatives have focused on the
policy and regulatory environment, training and capacity building as well as on
promotion and advocacy.
 In order to implement its continued commitment and support of the global fight
against money laundering, the BSP worked for the passage of the Anti-Money
Laundering Act and issued a number of measures to bring the Philippines'
regulatory regime on money laundering closer to international standards.
 The BSP has been conducting public information campaigns in line with the effort
to increase public awareness on the role of the BSP in the economy and the
financial system and to further enhance the transparency of monetary policy.
 The BSP has also taken a proactive stance in embarking on a consumer education
program that aims to improve the basic financial literacy of the public.
 The BSP undertakes various bank-related initiatives to improve the remittance
environment and to channel remittances to productive undertakings. Through
these initiatives, the BSP intends to maximize the benefits of remittances aimed
at: (1) ensuring the smooth inflow of remittances, and (2) promoting their use for
development by channeling them to the financial sector so that these funds can
be mobilized for lending and other productive activities.

The BSP Values

Key Moment's in the Bank's History

Awards Received by the Governor

1. Central Bank Governor for Asia - 2001

2. Global Finance Magazine Award from B (2001) to A (2002)
3. Stars of Asia Award - 2003
4. Communication Leadership Award - 2004
5. Management Man of the Year Award - 2004

Awards Received by the BSP

1. BSP as Top Performer in Makati Business Club Surveys

2. ISO Certification for SPC - 1999
3. Two Anvil Awards for BSP – 2005

Analysis of the Organization

We have participated in a major event in Bangko Sentral’s history: we have taken part in
putting one of our core values in action – solidarity.

But beyond connectivity through technology, we need to do is to work more closely

together. We need to ensure that within our offices and departments, particularly our
sector we are all working, in solidarity, to serve our people and our country as central
bankers. That after thorough and healthy discussions of a broad range of ideas, all
possible scenarios and options, we unite behind final decisions that are made, whatever
position we hold.

We know that if we are divided and fragmented, it will take more time to reach the goals
we aspire form or worse, we may lose our way. Either way, we do a disservice to our
country.

This is not to say that we are not united. However, in this imperfect world, there is always
room for improvement. In words and in deeds, let us be one.

United, we are strong and can be the best we can be, at all times. Together, let us unleash
the Power of One.

As we start a new chapter in the history of our country and the Bangko Sentral, it would
be useful to assess where we are, where we are going, and how we plan to get there.

For this, let us use our mission statement as our guide. First, we declared that “the BSP is
committed to promote and maintain price stability.” Do you believe we have
accomplished this? …. Yes, of course!
Seventeen years ago, the Bangko Sentral ng Pilipinas was established as an independent
central monetary authority with the mandated primary duty, under its charter, to
maintain price stability. This came at a time when a global consensus was emerging that
price stability should indeed be the overriding goal of monetary policy. Since then,
extensive studies have shown that the overall declines in the level and volatility of
inflation can be associated with better monetary policy. Price stability therefore has been
the hallmark of modern central banking.

Today, we can say that appropriate and timely monetary policies have kept inflation and
the Bangko Sentral’s policy rates at low single-digit levels. In fact, even through periods
marked with record high prices of basic commodities such as oil and rice, we protected
the purchasing power of Filipinos in the best way we can and kept the cost of money for
business and consumers at relatively low levels.

Our mission statement also declares that the BSP is committed to “provide proactive
leadership in bringing about a strong financial system conducive to a balanced and
sustainable growth of the economy.” Do you believe we have accomplished this? ….. Yes,
of course!

In fact, we can say that the Philippine banking system passed the ultimate stress test by
remaining sound and stable, even when major international institutions buckled under
the most debilitating global financial crisis in decades. I should also mention that while
there was a global financial credit squeeze, Philippine banks kept credit flowing to our
economy, on the back of ample liquidity in the financial system. Confidence in our banking
system was manifested by a double-digit growth rate in aggregate bank deposits to nearly
P4.7 trillion in 2009.

Indeed, sustained pursuit of critical reforms to improve governance, strengthen bank

capitalization, clean up banks’ balance sheets, and enhance risk management helped
create sound underpinnings for a healthier banking system.

The last part of our mission statement further says “towards this end, it shall conduct
sound monetary policy and effective supervision over financial institutions under its
jurisdiction.” Did we accomplish these? …. Yes, of course!

I believe that appropriate monetary and banking policies of the Bangko Sentral have been
contributing factors to sustaining growth in our country and in particular, in keeping the
Philippine economy resilient and on dry ground amidst the turbulence of the global
financial and economic crises.

Indeed, we can take quiet pride that the BSP has built a reputation as a credible inflation
fighter. I can say that our transparency and accountability practices helped anchor the
public’s inflation expectations and created a more predictable environment for business
planning and consumer decisions. In fact, except during periods of significant supply-side
shocks, inflation under our inflation targeting framework has been generally lower than
target.

We also engaged other regulators within the financial sector to work more closely with
the Bangko Sentral to harmonize standards and procedures, to align our policies with
global best practices, and to have a coordinated program for a financial sector that is
more responsive to the needs of our economy.

Equally important, the BSP’s real-time gross settlement system or PhilPaSS continues to
inspire confidence and development in the financial system. Able to process large value
payments that reached P188 trillion in 2009, PhilPaSS is gearing up to further use its
capacity to benefit overseas workers by processing remittance flows to facilitate service
delivery and lower remittance fees.

These are gains we have made insofar as the three pillars of central banking are
concerned.

In addition, we also have a healthy external liquidity position with a balance of payments
(BOP) surplus, record high gross international reserves and remittances from overseas
Filipinos, as well as a stable and competitive peso.

All these will help provide our economy with appropriate cushions against possible
external shocks, going forward.

Our Security Plant Complex, on the other hand, continues to meet most of our currency
requirements through banknote printing and coin minting. And through SPC, we helped
the Department of Foreign Affairs produce machine-readable and electronic passports,
thereby allowing Filipinos to have globally-compliant travel documents. When it
completes the upgrading and expansion of its facilities, SPC shall be able to meet the
steady rise in demand by our expanding economy and growing population; it shall also
print our new generation banknote designs with upgraded security features.

Let me also mention the advancement of key programs of the BSP during the past few
years. In support of the global fight against money laundering, we continue to fine-tune
our regulations and expand our reach which now include our supervision of foreign
exchange dealers and remittance agents.

We are also proud of our accomplishments in microfinance across the Philippines which
has liberated thousands of our entrepreneurial poor from poverty. This is based on hard
data and the many inspiring success stories it has spawned. Our success in microfinance
has been validated by a global survey which ranked the Philippines as number one in
terms of providing a regulatory framework conducive to the development and growth of
microfinance.
Today, more than 200 banks are engaged in microfinance with aggregate loans of about
P12 billion granted to roughly 900,000 microentrepreneurs. And you will be happy to
know that about 600,000 of them now have bank accounts and their total deposits have
reached one billion pesos!

In addition, our inclusive economic and financial education programs that target Filipinos
from different sectors across our country help empower millions of Filipinos: from
students in the elementary and college levels, to overseas Filipinos and their dependents,
to salaried employees, the public in general, as well as exporters, microentrepreneurs,
and SME investors. In particular, we have enhanced access to bank credit in the
countryside through the Credit Surety Fund (CSF) Program.

We have also set up 22 economic and financial learning centers all over the country to
make useful economic information accessible not only to students but also to
professionals and the business sector.

We also constantly worked on improving the Bangko Sentral’s capabilities as a public

institution through competitive compensation and benefit package that attracts and
retains the best and the brightest. At the same time, our continuing wholistic training
program equips our employees with the necessary skills and expertise to perform their
duties more effectively. We also continue to provide local and foreign scholarships to our
deserving employees so that they can capably respond to the challenges ahead and one
day assume leadership roles in our institution. And of course, we make sure we provide a
healthy and safe working environment conducive for a more productive and efficient
workforce.

Moving forward, we will need to draw strength from the core values we have identified
as imperatives for the Bangko Sentral to be successful in pursuing its mandate. We have
discussed Solidarity earlier. Let me guide you in identifying the other four values of the
BSP.

· It starts with the letter P: you are correct, it is patriotism;

· It starts with E: you are correct, it is excellence;
· It starts with I: you are correct, it is integrity; and
· It starts with D: yes, it is dynamism.

But you and I know, there is still a lot of room for improvement. We will work on these
together, starting with the results of the workshop on Organizational Enhancements
which we completed. Briefly, this will cover continuing improvements in our processes,
an enterprise-wide communication policy and program, the continued development of a
values-driven workforce, and reinforcing the ties that bind us through our heroes, legends
and symbols.
Foremost of these symbols is our new logo that embodies BSP’s
continuing transformations to adapt to a changing environment and our now global
approach to the three pillars of central banking, as represented by three gold stars. Our
principal symbol of course is the Philippine Eagle, the world’s largest, which is a symbol
of strength, clear vision, and independence, the qualities we aspire for as a central bank.

The Bangko Sentral ng Pilipinas has a solid track record that makes me confident we have
what it takes to reach our goals faster and in a more efficient manner. Together, let us
move the BSP and our economy forward to help ensure balanced and sustained growth
across our country.

We are grateful for the opportunity to serve our country and our people. And we will
commit to work more closely together as we pursue our agenda to improve the quality of
life of our people through responsive monetary and banking policies.

References

Bangko Sentral ng Pilipinas, Regional Monetary Affairs Sub-Sector, Integrated

Management System, Volume 1

Bangko Sentral ng Pilipinas, Regional Monetary Affairs Sub-sector, Integrated

Management System, Volume 2

Business Continuity Plan, Bangko Sentral ng Pilipinas, Copy No. 7

Bangko Sentral ng Pilipinas website (www.bsp.gov.ph)