Payment System
The payment system is evolving overtime from relying on
payments made in gold and silver coins, to payments made
with paper currency and checks written on the deposits in
bans, to payments made by electronic fund transfers
The transition from commodity money to Fiat money.
Commodity money refers to good used as money that has value
independent of its use as money.
Fiat money refers to money such as paper currency so there’s
no value apart from its use as money.
In modern economies, the central bank, the Banco Central ng
Pilipinas, issues paper currency.
The modern BSP payment system is fiat money system
because the BSP does no exchange paper currency for gold or
any other commodity money.
The BSP issues paper currency and holds deposits from banks
and the national government.
Banks can use these deposits to settle transactions with one
another.
It is not the government’s designation of currency as legal
tender that explains why paper currency circulates as a medium
o exchange.
Other paper currency circulates because of the confidence of
consumers and firms that if they accept paper currency they
will be able to pass it along to someone else when they need to
buy goods and services.
One value something as money only if one believes that others
will accept it from you as payment.
The society’s willingness to use pieces of paper issued by the
BSP as money makes them an acceptable medium of exchange.
New technology and the payment system
The BSP supervises the payment system but many payments are
processed by banks and other private funds.
The five most desirable outcomes for a payment system:
1. Security. Better security increases consumers and
businesses confidence that funds will not be stolen
electronically.
2. Efficiency. Increasing the efficiency of the payment
system allows it to function using fewer workers and
computers or other capital which benefits the economy.
3. Speed. Fast settlement of payments facilitates
transactions by both households and businesses.
4. Smooth international transactions. The increasing
amount of businesses that takes place across.
5. Effective collaboration among participants of the
system. Involvement ensures smooth transfers of funds
in transactions.
E-money Bitcoin and Blockchain
Hundreds of electronic fund transfers have expanded to include
e-money or electronic money which is digital cash people used
to buy goods and services.
Recently, journalists, economists and policymakers have been
debating the merits of Bitcoin, a new form of e-money.
Bitcoin is not owned by a firm is instead he product of a
decentralized system of link computers.
Bitcoins are produced by people performing the complicated
calculations necessary to ensure that online purchases made with
bitcoins are legitimate.
Because people can buy and sell bitcoins in exchange for dollars
and other currencies on websites, some people refer to it as
cryptocurrency.
You can then buy something in a store that accepts bitcoins by
scanning a barcode with your phone.
Despite this possible benefits to using bitcoins, it is not yet been
widely adopted. Some firms also question whether the software
underlying Bitcoin is capable of dealing with a large number of
transactions.
Despite the problems with bitcoin, underlying technology
behind it known as blockchain has attracted interest from both
firms and governments speed efficiency and security of the
payment system.
Blockchain is technically a distributed ledger or an online
network that registers ownership of funds, securities or other
good, including movies and songs.
Blockchain allows individuals and businesses around the world
to settle transaction instantly and securely on unencrypted sites.
Direct transactions through blockchain could eliminate banks
and other intermediaries potentially greatly reducing cost.
Cashless Society
Blockchain and other new payment technologies are exciting
and lead some commentators to predict a cashless society.
Research study found that cash non cash payments continue to
increase as a fraction of all payments and electronic payments
now make up more than 2/3 of all non cash payments.
In reality, an entirely cashless or check-less society may be
difficult to obtain in the near future for two key reasons:
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With respect to blockchain, the infrastructure for any
payment system is expensive to build.
Many households and firms worry about protecting
their privacy in an electronic system that is subject to
computer hackers.