Guidelines in

Government
Securities
What is Government
Securities?
 are debt instruments issued by
the Republic of the Philippines or
any of its instrumentalities to
finance public expenditures.
 is a bond or other type of debt
obligation that is issued by a
government with a promise of
repayment upon the security's
maturity date.
 are usually considered low-risk
investments because they are
backed by the taxing power of a
government.
 they sell these products to
finance day-to-day governmental
operations and provide funding
for special infrastructure and
military projects
.

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Why are they issued?

 these are issued to raise funds for

governmental expenditures.
 sell debt securities for another
reason: to control the supply of
money in an economy

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 Types Of Government
Securities:
The Philippines Government
issue both Peso and US Dollar
denominated Securities.
There are 2 kinds of Peso Government Securities:
1. Treasury Bills
- are obligations with maturity of one year
or less, typically issued at a discount to the maturity
value.

2. Treasury Bonds
- obligations with maturities ranging from 2
years to 25 years, typically issued at par with periodic
coupon payments to be made up to final maturity.

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 As for the dollar denominated GS
1. Republic of the Philippines (ROP) Bond
Minimum investment: US$100,000.00
Tenor: 1 to 35 years remaining tenor
Interest: payable semi-annually throughout
the tenor if held until maturity
Tax: Nontaxable

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Guidelines in Government
Securities
The guidelines in the issue and methods of placing government securities are
appropriately pronounced in Sections 122 and 123 of the Central Bank Act (as amended)

Section 122 Section 123

Profits and Losses of the Fund.
The Securities Stabilization Fund shall
retain net profits which it may make on its
operations, regardless of whether said
profits arise from capital gains or from
interest earnings. The Fund shall
correspondingly bear any net losses which
it may incur.
Financial Advice on Official Credit
Operations.
Before undertaking any credit operation
abroad, the Government, through the
Secretary of Finance, shall request the
opinion, in writing, of the Monetary Board on
the monetary implications of the
contemplated action. Such opinions must
similarly be requested by all political
subdivisions and instrumentalities of the
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Government before any credit operation
abroad is undertaken by them.
The Central Bank of the Philippines is likewise mandated by the law to
administer the “Securities Stabilization Fund” for the account of the
Government. In particular, the Central Bank Act (as amended) provides
that the operations of the Securities Stabilization Fund be directed in the
purchases and sales in the open market, of bonds and other evidences or
indebtedness issued or fully guaranteed by the government of the Republic
of the Philippines. The purpose of these operations is to increase the
liquidity and stabilize the value of said securities in order thereby to
promote private investment in Government obligations

By the large, open market operations as a tool of monetary regulation are

availed of to increase or to decrease money supply irrespective of the
kinds of securities involved. While open market operations as a means of
stabilizing government security prices refer only to specific or particular
kind of security whose value is targeted to be stabilized and “the
magnitude of this operation is limited by the size of the particular debt
issues” (Bince, 1978)

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Sale of
Government
Securities
In September of 1978, the Central Bank of the Philippines adopted the auction method in the sales of
Central Bank Certificates of Indebtedness with the redesigned features for the purpose of providing the
sparkling necessary in the attainment of the broad objectives of the yields rationalization program. The
investors responded enthusiastically and favorable on this regard. (Perdon, 1978)

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It is safer to say that the effectiveness of open-market operations as a tool of
quantitative monetary regulation in developed countries is undeniable beyond
questions. For instance, the Federal Reserve System, Bank of England and
Reserve Bank of Canada have extensively relied upon open-market operations as
an instrument of monetary control. Such reliance may be due to its greater
effectiveness and flexibleness.
For example, it “can be brought into action quietly, without fanfare that accompanies
announcements of changes as in reserve requirements and rediscount rate” (Bince,
1978)

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Finally, it is worthy of note that the open-market purchases/sales of the redesigned
and reconstructed CBCI’s conducted by the Central Bank of the Philippines have
been encouraging. The right direction is on as may be construed fro the following
(Philippines Evening Express, 1979):
“During the first quarter of the year, P800 million was sold out.
“Additional blocks of P200 million each have likewise been schedules for May and
June.
“Sales proceeds of these auctions are earmarked for dispersal to the countryside for
small-medium-scale industries as well as for export-oriented projects.
“In an earlier report to the President on Philippine economy, CB Governor G.S Licaros
stressed that the Central Bank would make full use of its open-market operations to
curtail inflation and regulate liquidity that may be generated in the system by the
recent price increases.

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“CBCIs constitute a major instrument for this purpose and all previous CBCI auctions
have been consistently marked by oversubscription.
“CBCIs are eligible as an alternative investment of unloaned funds for agricultural and
agrarian reform credit.
“As redesigned, CBCIs carry a 4-year term; bear a taxable interest coupon of 0 per
cent per annum payable semi-annually; and are available in denominations of
P10,000; P50,000; P100,000; and P500,000. They are direct and unconditional
obligations of the Central Bank”.

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Reserve Requirements:
The principal consideration why banks operating in the Philippines are required to maintain reserves
against their deposit liabilities, is to enable the Central Bank of the Philippines to control the volume of
money created by the credit operations of said banking institutions.

The required reserves of each bank is in proportion to the volume of its deposit liabilities, and ordinarily
takes the form of a deposit in the Central Bank of the Philippines.

The Monetary Board may, whenever circumstances warrant, permit the maintenance of part of the
required reserves in the form of assets other than peso deposits with the Central Bank.

The reserve requirements are applicable to all banks of the same category uniformly and without
discrimination.

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On the other hand, the latter provision authorizes the Monetary Board to prescribe and modify the
minimum reserve ratios applicable to each class of peso deposits. Such ratios, however, be not less
than five percent (5%) or more than twenty-five percent (25%) for time and saving deposits; and be not
less than ten percent (10%) or more than fifty percent (50%) for demand deposits.

A higher reserve ratio results in contracting credit.

A lower reserve ratio results in expanding credit.

Basically, it may mean contraction or expansion of money supply as the case may be. The principle
herein enunciated is likewise applicable to other tools of monetary management, namely:

1. discount rates
2. rediscount rates

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Specific Penalties
Sections 32, 33, 34, 34-A of the Central Bank Act (as amended) are highly instructive as to the
penalties or sanctions imposed to a non-follower or violator.

Section 32 pertains to refusal to make reports or permit examination. Thus, any owner agent
manager, or other officer-in-charge of any banking institution within the purview of the law who, being
thereunto required in writing by the Monetary Board or by the head of the appropriate supervising and
examining department, willfully refuse report or permit any lawful examination into the affairs of such
institutions shall be punished by a fine of not more than ten thousand or by imprisonment of not more
than one year, or both in the discretion of the court.

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Section 33 is concerned with false statement. Hence, the willful making of a false statement or to the
head of the appropriate supervising and examining department or to his examiners is to be punished
by a fine not to exceed fifteen thousand pesos, or by imprisonment for term not to exceed two years,
or both in the discretion of the court.

Section 34 is about violation of laws and regulations. The law being referred to is Central Bank Act.
While the regulations may refer to any order, instruction, rule or regulation issued by the Monetary
Board. As such, the person or persons responsible for such violation is to be punished by a fine of not
more than twenty thousand pesos and by imprisonment of not more than five years.

Administrative sanctions on banks is covered by Section 34-A. The following administrative sanctions
are in addition to what may be imposed on “refusal to make reports or permit examination”, “false
statement”, and “violation of laws and regulations”.

1. Fines not in excess of five hundred pesos a day for each type of violation;
2. Suspension, or after due hearing, removal of directors and/or officers;
3. Suspension of rediscounting privileges;
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4. Suspension of lending of foreign exchange operations or authority to accept new deposits or make
new investments;
5. Suspension of interbank clearing privileges; and/or
6. Suspension of authority to operate.

The above administrative sanctions need not applied in the order of their severity. Also, they must be
applied to all banks of the same category uniformly and without discrimination.

Administrative sanctions on non-bank financial intermediaries performing quasi-banking function is

covered by Section 34-B. The imposition of such sanction is discretionary on the part of the Monetary
Board of the Central Bank of the Philippines. The grounds are the same as mentioned with respect to
banking institutions, or any commission of irregularities. The administrative sanctions are a follows:

1. Fines not excess of five hundred pesos a day for each type of violation;
2. Suspension or, after due hearing, removal of directors and/or officers;
3. Suspension of access to Central Bank credit facilities; and/or
4. Suspension or, after due hearing, revocation of quasi-banking license.
The above administrative sanctions need not be applied in the order of their severity. 16
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