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Define money, its concepts of demand and
supply, and the roles of the financial
institutions and international monetary
institutions to a nation’s economy
Explain the functions of Bangko Sentral ng
Pilipinas (BSP) and the types of BSP
examinations to financial institutions.
Compare and differentiate the organizational
structure functions, supervisions, and
operations of the Central Bank of United
States, Eurozones, Great Britain and Japan
Recognize and differentiate the types of
Monetary Policy; Identify and explain each of
the money supply indicators and their
implications to the economy.
Summarize and justify other monetary policy
issues as to how they affect the money supply
and the economy. Compare and differentiate
the new Monetary Board from the old
Monetary Board and determine qualifications
and role of the Monetary Board.
Recall each monetary policy instruments as
on how they can control the money supply.
Describe the role and significance of the
Bureau of Treasury and Security Exchange
Commission in the implementation of
monetary policy instruments (Open Market
Operations).
Formulate and compare the present and
future value of the Philippine peso and its
effect to the economy
Copyright ©2017 Pearson Education, Inc.
FLEX Course Material
Monetary Policy and
Central Banking
Topic 1 : Introduction to Money
WHAT IS MONEY?
Money refers to all things that
are generally acceptable as a
means of payment for good and
services (medium of exchange)
or in the settlement of debts.
WHAT ARE THE FUNCTIONS OF
MONEY?
Money as a unit of account
Money as a medium of exchange
The prerequisite of the barter system is called the double coincidence of wants.
Money as a store of value
Money as a standard of deferred payment
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EVOLUTION OF MODERN PAYMENT
SYSTEM IN THE PHILIPPINE
From a period of autarky or no trade system where the
much older generation of Filipino families produced
commodities for their own consumption, the mode of
transaction often cited was the barter system.
This was followed by the use of commodity
money were people used commodities such
as salt, carabao, shells that serves as a
medium of exchange.
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EVOLUTION OF MODERN PAYMENT
SYSTEM IN THE PHILIPPINE
Face value refers to the amount of goods
and service that can be bought with the
use of the paper bills.
Example: if you have a one thousand
peso bill, then it is possible for you to
purchase goods and services worth of a
thousand pesos at the maximum.
Specialized bankers offered businessmen and traders the
particular service of safekeeping their surplus money for a fee.
Overtime, bankers discovered that they can also lend a portion of
the traders’ surplus money to other people who needed funds and
then charged as an interest in return. With the vast developments
in commerce and industry, the system of fractional reserve
banking also evolved
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THE DEMAND OF MONEY
The demand for money for real balances or purchasing power,
i.e., the amount of goods and services money can buy.
According to John Maynard Keynes, there are 3 motives for
holding money:
Transaction motive
Precautionary motive
Speculative or portfolio allocation motive.
THE SUPPLY OF MONEY
M1 –currency (e.g., paper bills and coins) in
circulation plus demand or checking deposits;
M2 – this refers to M1 plus savings and small
time deposits;
M3 – this refers to money supply, peso savings,
time deposits, plus deposit substitutes of moneygenerating banks, and negotiable order of
withdrawal (NOW) accounts.
RM – this is the reserve money which represents
liabilities of the BSP to the public sector in the
form of currency in circulation and to banking
sector in the form of cash reserve.
Money supply is determined by the behavior of
three principal actors—the public, the bank, and
the BSP.
THE ROLE OF MONETARY INSTITUTIONS IN THE
ECONOMY
The Bangko Sentral ng Pilipinas
The Central Bank of the Philippines (CB) was established on June 15,
1948 by virtue of Republic Act No.265. Its primary objectives then
were:
a) To maintain the monetary stability in the country;
b) b) To preserve the international value of the peso; and
c) c) To promote rising level of production, employment, and real
income in the Philippines.
On June 14, 1993 , through R.A. 7653, the Bangko Sentral ng
Pilipinas (BSP) was put up as a central monetary authority. Its primary
objectives were still to maintain price stability (or fight inflation)
conductive to a balanced and sustainable growth of the economy as well
as promote and maintain monetary stability and convertibility of the
peso.
BSP likewise called lender of the last resort. From whom ailing or
bankrupt banks can borrow if other banks in the financial system cannot
provide them with the necessary funds
FINANCIAL INSTITUTIONS
The Philippine financial or monetary system is a network of
markets and institutions that transfer funds from individuals
and groups who save money to individuals and groups who
want to borrow money.
Banks are Classified as:
a) Universal and commercial
b) Rural bank
c) Thrift bank – which include:
1. Savings and mortgage banks
2. Private development banks
3. Micro-finance institutions
4. Stock savings
5. Loan associations
FINANCIAL INSTITUTIONS
Non-banks institutions are:
a) contractual savings institutions – such as:
- Insurance companies
b) Investment institutions
c) Securities market institutions
- Securities brokers and dealers
- Lending investors
- Organized exchanges
d) Credit card companies
e) Pawnshops
FINANCIAL INSTITUTIONS
Financial or monetary institutions are important
because of the following major roles:
a) They allocate or channel saving efficiently
from savers to borrowers;
b) They provide information, liquidity, and
risk-sharing services;
c) They provide flexibility and divisibility of
funds for the users and sources of this
funds;
d) They are essential for ensuing capital
formation and economic growth
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SIMPLE MONEY CREATION
Money Multiplier is the factor by which money
supply will change given a change in monetary
base or given a change in deposit.
Formula of the Money Multiplier:
mm = 1 / rr
Formula of the Change in Money Supply:
M = mm x M
INTERNATIONAL MONETARY INSTITUTIONS
AND THE PHILIPPINE MONETARY SYSTEM
Even prior to financial liberalization and globalization
of markets in the recent past, the Philippine monetary
system has been affected by international monetary
institutions particularly by the International Monetary
Fund (IMF) and the World Bank (WB).
International Monetary Fund was created to:
a) Act as lender of last resort;
b) Encourage domestic economic policies consistent with foreign
exchange rate stability; and
c) Monitor the financial activities of member countries
World Bank was also created to:
a)
To make a long term loans available for developing countries
b)
Give loans for infrastructure to aid economic development
c)
Sell bonds in international capital market to raise loanable funds.
Composed of five (5) institutions:
1.
International Development Association (IDA)
2.
International Bank for Reconstruction and Development (IBRD)
3.
International Finance Corporation (IFC)
4.
Multilateral Investment Guarantee Agency (MIGA)
5.
International Center for Settlement of Investment Disputes (ICSID)
The World Bank also encourages member counties to give priority
to programs for good governance and transparency, environmental
protection and sustainable development. These programs are
envisioned as potential solutions to eradicate poverty in member
nations
THANK YOU
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