Money and Monetary Policy
General Concepts
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Money
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An item that is used by buyers to purchase goods and services
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Commodity Money (Gold and Silver)
Fiat Money (US Dollars; PH Peso)
Representative Money
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Functions of Money
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Medium of exchange – money facilitate the transfer of a product from one person to another
Unit of Account – measure that people use to buy the goods that they want
Store of Value – Money stores the value it carries.
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Importance of Money
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Stable value of money is essential to trade
Healthy banks are important for savers, investors, borrowers and the public
Markets play a vital role in the function of our monetary system
A well designed and well executed monetary policy is essential for an economy to keep its
resources fully employed
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Concept of Banking
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Financial Intermediation Process – process where an institutional unit incurs liability on its own
account for the purpose of acquiring financial assets by engaging in financial transactions on
the market.
Function of Banks
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Deposit taking
Lending Activities
Treasury Operations
Trust Operations
Private Banking
FCDU Operations
International Banking
Brokerage
Investment banking or underwriting
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Types of Banks
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Universal Banks – Serve all banking functions (Subject to government approval)
Commercial Banks – Same with Universal Banks except for the absence of Underwriting Functions
Thrift Banks - This category is made up of savings and mortgage banks, private development banks, and stock
savings and loan associations. These banks focus on accumulating and investing depositors’ savings,
while also providing short-term working capital, and medium- and long-term financing.
Rural Banks - Popular in rural communities, these banks are tasked with providing basic financial services to
residents. These are meant to help promote and expand the local economy in an orderly and effective manner.
Cooperative Banks - These banks are very similar to rural banks, but the main difference is in
their ownership. Rural banks are privately owned and managed, while cooperative banks
are organized or owned by cooperatives or federation of cooperatives.
Islamic Banks - Such banks conduct business in accordance with the principles of the Shari’a, or Islamic Law.
Their objectives and operations do not involve interest, or riba, which is prohibited by the Shari’a.
Digital Banks - Banks that do not have physical offices and operate online using websites or software
applications
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Central Banking in the Philippines
Bangko Sentral ng Pilipinas – Independent Government Agency empowered to govern all banks and non bank
financial institutions to maintain monetary stability in the country
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Supervisors of All Banks
Banks of Banks
Issuer of Money
Monetary Authority
Custodian of Country’s Official reserves
Lender of Last Resort
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Monetary Policy
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Open Market Operations
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Repurchase Rate – Rates which BSP sells its securities to the bank
Reverse Repurchase Rate – Rate at which the banks redeem the BSP issued instruments
Reserve Requirements
Interest Rates
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