Spanish Rule and Galleon Trade Overview

Spanish Rule and Galleon Trade

• The early years of Spanish rule in the Philippines saw the encouragement of free trade, goods from the Far East were exported to America through Manila and Acapulco.
• The Manila-Acapulco Trade, also known as the Galleon Trade, was a product of mercantilism, and it was carried by transpacific galleons.
• The Galleon Trade was a government monopoly, with privileges being granted to the governor-general, religious officials, and soldiers.

Obras Pias

• A charity foundation by laymen, used for charitable and religious activities.
• Run by friars, they were the forerunner of banking institutions in the Philippines.
• Funds were donated by wealthy citizens and managed by religious orders.

American Era

• The American government placed priority on agricultural development.
• Americans introduced a better banking and credit system to boost economic development, especially in rural areas.

Rural Credit Law

• Enacted in 1915, it complemented agricultural cooperatives and credit associations.

Philippine National Bank

• Established in 1916, it provided long-term loans to agriculture and industry.
• It served as the de facto Central Bank of the Philippines until 1949.

Central Bank of the Philippines

• The Joint Philippine-American Finance Commission, chaired by Mr. Cuaderno, recommended the shift from the dollar exchange standard to a managed currency system.
• This led to the establishment of the Central Bank of the Philippines in 1949.
• The Central Bank of the Philippines (CBP) was inaugurated with Miguel Cuaderno, Sr. as the first governor.

Credit

• The foundation of credit lies in confidence.
• Credit has two primary aspects:
  • Confidence in the borrower’s ability to repay and managing their affairs.
  • Confidence in the borrower’s integrity.

Characteristics of a Credit Contract

• It's a bi-partite contract involving a debtor and a creditor.
• It is elastic, meaning it can be increased or decreased at the creditor’s discretion.
• It is built on trust and faith, the creditor must believe in the debtor’s ability and willingness to repay.

Types of Credit Based on Purpose

• Investment credit: For purchasing land, buildings, and equipment for business use.
• Agricultural credit: For acquiring fertilizers, pesticides, seedlings, and farm improvements.
• Export credit: Used for financing international trade, often with a “Letter of Credit” guaranteeing payment to the exporter.

The Credit Period

• The typical credit period is 90 days.
• Debtors can apply for loan renewal after 90 days, or for the paid portion, provided they have not been delinquent in payment.

Rediscounting

• A credit facility provided by the BSP to help banks fulfill temporary liquidity needs by refinancing loans they extend to their clients.
• Banks can liquidate and refinance loans using securities as collateral.

Types of Loans Granted by Banks

• Demand or callable loan: Not subject to a specific maturity date and can be called in by the bank at any time.
• Time loan: Has definite maturity dates which can be short-term, medium-term, or long-term.
• Character loan: Usually short-term and based on the borrower's credibility. For loans longer than a year, collateral may be required.

Pawnshop

• A business that provides loans to consumers in exchange for valuable items (collateral).
• The pawner receives loaned money and interest back after repayment.
• Customers include people needing quick cash, those trading used items, and people buying new or used merchandise.

Savings and Mortgage Banks

• Corporations that accumulate the savings of depositors and invest them in marketable bonds, securities, and other financial instruments.
• They also provide loans based on the collateral presented.

Compound Interest Formula

• F=P(1+j/m)^mt
• I=F-P
• F=P(1+r)^n
• Where:
  • P: Original Principal
  • F: Compound Amount or final accumulation of P
  • I: Compound Interest
  • j/m: Nominal interest rate per conversion period (j=annual rate, m=conversion periods per year)
  • n: Number of conversion periods for the whole term (n=mt)
  • m: Number of conversion periods per year
  • t: Time or term of investment in years

Simple Interest Formula

• I = Prt
• Where:
  • I: Simple Interest
  • P: Principal
  • r: Interest rate per year
  • t: Time in years