Beyond the Colonial State: Central Bank Making as State Building in the 1930s

Abstract

The purpose, origin, and strength of the Central Bank of the Philippines remain a puzzle for students of the Philippine political economy. Trade policy and fiscal policy have been well studied within the theoretical framework of a weak state, but the politics of monetary policy have curiously been overlooked. As it happens, the bank enjoyed an excellent reputation as “an island of state strength.” This paper sheds new light on the politics of economic policies by arguing that monetary policy introduced a new type of politics in the 1930s. This was a period during which a network of Filipino policy makers emerged and became an incubator for other leading policy makers in the early years of the Republic of the Philippines. Established politicians such as Manuel L. Quezon and American colonial officers paid scant attention to monetary policy reform, while these policy makers shouldered the responsibility of policy proposals. Their proposal to establish a central bank went beyond the monetary policy mandate, because they aimed to depart from the conventional market-governed colonial economic structure to a managed currency system backed by economic planning. By focusing on their attempts, this paper reveals that while the emergent crop of Filipino policy makers were beneficiaries of the colonial state, they were not satisfied with colonial economic policies and worked toward building an independent state equipped with qualified institutions.