Third Republic and martial law
Shortly after President Manuel Roxas assumed office in 1946, he instructed then-Finance Secretary Miguel Cuaderno, Sr. to draw up a charter for a central bank.[6] The establishment of a monetary authority became imperative a year later as a result of the findings of the Joint Philippine-American Finance Commission chaired by Cuaderno. The commission, which studied Philippine financial, monetary, and fiscal problems in 1947, recommended a shift from the dollar exchange standard to a managed currency system. A central bank was needed to implement this proposed shift.
Roxas then created the Central Bank Council to prepare the charter of a proposed monetary authority. It was submitted to Congress in February 1948. The Central Bank Act authored by then Congressman José J. Roy was signed into law in June of the same year [7] by the newly proclaimed President Elpidio Quirino, who succeeded the late President Roxas, affixing his signature on Republic Act (RA) No. 265 or the Central Bank Act of 1948. On January 3, 1949, the Central Bank of the Philippines was formally inaugurated with Cuaderno as the first governor. The main duties and responsibilities of the Central Bank were to promote economic development and maintain internal and external monetary stability.[8]
Over the years, changes were introduced to make the charter more responsive to the needs of the economy. On November 29, 1972, President Ferdinand Marcos' Presidential Decree No. 72[9] amended Republic Act No. 265, emphasizing the maintenance of domestic and international monetary stability as the primary objective of the Central Bank. The Bank's authority was also expanded to include regulation of the nation's entire financial system just supervision of the banking system. In 1981, RA 265, as amended, was further improved to strengthen the financial system,[10] among the changes was the increase in the capitalization of the Central Bank from ₱10 million to ₱10 billion.[9]
In the 1973 Constitution, the interim Batasang Pambansa (National Assembly) was mandated to establish an independent central monetary authority. Presidential Decree No. 1801 designated the Central Bank of the Philippines as the central monetary authority (CMA).[11]
The Central Bank facilitated loans to Marcos cronies at Marcos's behest. Through these behest loans, large sums of money went to cronies' projects, including several that were not considered feasible.[12]
In 1984, a Monetary Board report discovered that the Central Bank overstated the country's dollar reserves by approximately $600 million, which was caused by anomalous transactions made to overseas branches of the Philippine National Bank in a desperate effort to generate non-existent foreign exchange reserves to increase lending and credit creation.[13][14] The Central Bank's financial stability was also undermined by large emergency loans that it made to failing institutions such as Banco Filipino and financing of government deficits and loss-making assets, which eroded its capital requirement.[15] This eventually caused the Central Bank to become insolvent, effectively becoming bankrupt.[14][13]
