Bangko Sentral ng Pilipinas History Quiz

Evolution of Money

• Commodity money was used as a medium of exchange, where people used commodities such as salt, carabao, and shells.
• The use of commodity money was followed by the use of paper bills, which have a face value that refers to the amount of goods and services that can be bought with it.

Banking System

• Specialized bankers offered safekeeping services for a fee, and later discovered that they could lend a portion of the surplus money to other people who needed funds and charge an interest in return.
• The system of fractional reserve banking evolved over time, allowing banks to lend a portion of the deposited money.

Demand for Money

• The demand for money refers to the amount of goods and services that money can buy.
• According to John Maynard Keynes, there are three motives for holding money:
  • Transaction motive: holding money to enable people and firms to pay for daily transactions.
  • Loan motive: holding money for loan purposes.
  • Speculative motive: holding money for speculative purposes.

Financial Institutions

• Financial institutions are important because they:
  • Allocate or channel savings efficiently from savers to borrowers.
  • Provide information, liquidity, and risk-sharing services.
  • Provide flexibility and divisibility of funds for users and sources of funds.
  • Are essential for ensuring capital formation and economic growth.
• Non-bank institutions include:
  • Contractual savings institutions (e.g. insurance companies).
  • Investment institutions.
  • Securities market institutions (e.g. securities brokers and dealers, lending investors, organized exchanges).
  • Credit card companies.
  • Pawnshops.

Money Creation

• The Money Multiplier is the factor by which the money supply will change given a change in the monetary base or deposit.
• The formula for the Money Multiplier is: mm = 1 / rr.
• The formula for the Change in Money Supply is: M = mm x M.

International Monetary Institutions and the Philippine Monetary System

• The Philippine monetary system has been affected by international monetary institutions, particularly the International Monetary Fund (IMF) and the World Bank (WB).
• The Bangko Sentral ng Pilipinas (BSP) was established on June 14, 1993, as a central monetary authority.
• The primary objectives of the BSP are:
  • To maintain price stability (or fight inflation).
  • To promote and maintain monetary stability and convertibility of the peso.
• The BSP is also a lender of last resort, providing necessary funds to ailing or bankrupt banks.

Philippine Financial System

• The Philippine financial 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 into:
  • Universal and commercial banks.
  • Rural banks.
  • Thrift banks, which include:
    • Savings and mortgage banks.
    • Private development banks.
    • Micro-finance institutions.
    • Stock savings.