Overview of Money and Its Functions PDF

CHAPTER 1 OVERVIEW OF MONEY AND ITS FUNCTIONS THE EVOLUTION OF MONEY WHAT IS MONEY? According to D.H. Robertson, “Anything which is widely accepted in payment for goods or in discharge of other kinds of business obligation, is called money. ” Money is any thing...

CHAPTER 1 OVERVIEW OF MONEY AND ITS FUNCTIONS THE EVOLUTION OF MONEY WHAT IS MONEY? According to D.H. Robertson, “Anything which is widely accepted in payment for goods or in discharge of other kinds of business obligation, is called money. ” Money is any thing which is used as a medium of exchange. THE EVOLUTION OF MONEY COMMODITY MONEY ❑ The word “MONEY” is derived from the When different commodities were word “MONET” used as a medium of exchange. ❑ The origin of money is nowhere to be found. LISTED BELOW ARE THE PROBLEMS THAT CAN BE ENCOUNTERED WITH COMMODITY MONEY OF MODERN SOCIETY MONEY: ❑ Hunting society ❑ Storing Problem ❑ Pastoral society ❑ Durability Problem ❑ Agricultural society ❑ Transportation Problem ❑ Divisibility Problem HUNTING SOCIETY ❑ Until about 12,000 years ago METALLIC MONEY ❑ Hunting animals, gathering vegetation The metallic money started when precious metals like gold, silver, and ❑ Their productive technology was their copper were discovered. primitive weapons. Precious stones were use as money. ❑ The skin of wild animals was used as ONE OF THE EARLIEST EXAMPLES OF money. SUCH TRANSACTION CAN BE QUOTED IN GENESIS 37:28 PASTORAL SOCIETY “So when the Midianite merchants came by, ❑ From 10,000 to 12,000 years ago his brothers pulledJoseph up out of the ❑ Domestication of animals and cultivation cistern and sold him for twenty shekels of of plants silver to the ❑ Their productive technology was their Ishmaelites, who took him to Egypt.” primitive weapons ❑ Livestock were used as money. AGRARIAN SOCIETY ❑ About 5,000 years ago ❑ Cultivation of a vastly more extensive field ❑ Their productive technology was plows and draft animals. ❑ Grains and food were used as money TYPES OF METALLIC MONEY instrument which does not UNCOINED METALS necessarily involve bank accounts in o Metals were not used as a transactions. coin but a bullion. o This creates a problem of FUNCTIONS OF MONEY measuring the weight and 1. Medium of Exchange - exchange of goods value. and services straightforwardly. o Supply of money also became 2. Store of Value - A man who wants to store a problem when mines were his wealth in some convenient form will find fully used. money admirably suitable for the purpose. 3. Unit of Account - It is a unit of account and COINED METALS a standard of measurement. (Divisible, o As a next step, standard coins Fungible, Countable) were created. 4. Standard of Deferred Payment - It forms o They had a standard weight the basis for credit transactions and value. o Problems of uncoined metals WHY IS MONEY USEFUL? dissolved. 1. Durability 2. Portability 3. Divisibility COINED METALLIC MONEY CAN BE: 4. Uniformity Fully Bodied Coin 5. Limited Supply o Whose face value equals the face value of the metal CHAPTER 2 contained in it. MONETARY SYSTEM DURING THE COLONIAL Token Money PERIOD o Whose face value is higher DOMINANT CURRENCIES IN HISTORY than intrinsic value. Persian daric: The daric was a gold coin used in Persia between 522 BC and 330 BC. PAPER MONEY Roman currency: Currencies such as Paper money refers to the notes the aureus (gold), the denarius (silver), issued by the state, governs by a the sestertius (bronze), the dupondius central bank. (bronze), and the as (copper) were used during the Roman Empire from around CREDIT MONEY 250 BC to AD 250. Credit money is monetary value Thaler: From about 1486 to 1908, the thaler and its variations were used in created as the result of some future Europe as the standard against which the obligation or claim. As such, credit various states’ currencies could be money emerges from the extension valued. of credit or issuance of debt. Spanish American pesos: Around 1500 to the early nineteenth century, this ELECTRONIC MONEY contemporary of the thaler was Electronic money (e-money)is widely used in Europe, the Americas, and broadly defined as an electronic the Far East; it became the first world store of monetary value on a currency by the late eighteenth century. technical device that may be widely British pound: The pound’s origins used for making payments to entities date as early as around AD 800, but its influence grew in the 1600s as the other than the e-money issuer. The unofficial gold standard; from 1816 to device acts as a prepaid bearer  around 1939 the pound was the global minted in Manila. Silver pesos with the reserve currency until the collapse of the profile of young Alfonso XIII were the last gold standard. coins minted in Spain. The pesos fuertes, US dollar: The Coinage Act of 1792 issued by the country’s first bank, the El established the dollar as the basis for a Banco Espanol Filipino de Isabel II, were monetary account, and it went into the first paper money circulated in the circulation two years later as a silver country. coin. Its strength as a global reserve currency expanded in the 1800s and continues today. Euro: Officially in circulation on January 1, 1999, the euro continues to serve as currency in many European countries today. MONETARY SYSTEM DURING COLONIAL PERIOD PRE-HISPANIC ERA Long before the Spaniards came to the Philippines, trade among the early REVOLUTIONARY PERIOD Filipinos and with traders from the Asserting its independence, the neighboring lands like China, Java, Philippine Republic of 1898 under Borneo, and Thailand was conducted General Emilio Aguinaldo issued its own through barter. The inconvenience of the coins and paper currency backed by the barter system led to the adoption of a country’s natural resources. specific medium of exchange –the cowry shells. Cowries produced in gold, jade, quartz, and wood became the most common and acceptable form of money over many centuries. HISPANIC ERA The cobs or macuquinas of colonial AMERICAN PERIOD mints were the earliest coins brought in With the coming of the Americans in by the galleons from Mexico and other 1898, modern banking, currency, and Spanish colonies. These silver coins credit systems were instituted making usually bore a cross on one side and the the Philippines one of the most Spanish royal coat-of-arms on the other. prosperous countries in East Asia. The Americans instituted a monetary system for the Philippines based on gold and pegged the Philippine peso to the American dollar at a ratio of 2:1. The US Congress approved the Coinage Act for Coins from other Spanish colonies also the Philippines in 1903. reached the Philippines and were The coins issued under the system bore counter-stamped to legalize their the designs of Filipino engraver and circulation in the country. Gold coins artist, Melecio Figueroa with the portrait of Queen Isabela were  instances, municipalities through their local currency boards to show resistance against the Japanese occupation. THE PHILIPPINE REPUBLIC A nation in command of its destiny is the message reflected in the evolution of Philippine money under the Philippine Republic. Having El Banco Espanol Filipino to Bank of gained independence from the the Philippine Islands in 1912 paved United States following the end of the way for the use of English from World War II, the country used as Spanish in all notes and coins issued currency old treasury certificates up to 1933. overprinted with the word “Victory”. ENGLISH NOTES With the establishment of the Central Bank of the Philippines in 1949, the first currencies issued were the English series notes printed by the Thomas de la Rue & Co., Ltd. in England and the coins minted at the US Bureauof Mint. JAPANESE OCCUPATION The outbreak of World War II caused serious disturbances in the Philippine monetary system. Two kinds of notes circulated in the country during this period. The Japanese Occupation Forces issued war notes in high denominations. These war notes had no back up reserves, thus, Filipinos dubbed it “Mickey Mouse” money. During the worst inflation in Philippine history. On the other hand, Guerrilla Notes or Resistance Currencies which are in low denominations, were issued by different provinces and, in some  Pilipino Series Banknotes (1969- PILIPINO NOTES 1974) - To complete the Filipinization of Philippine currency, the Central Bank started to issue the series of multi- colored Central Bank notes worded in Pilipino and similarly bearing the portraits of Filipino heroes on the reverse, and vignettes in Philippine history on the reverse towardmid- 1969. This series called Pilipino series came in denominations 1,5,10, 20, 50 and 100. - Pilipino Series Coins (1969-1974) ANG BAGONG LIPUNAN SERIES (1975-1998) - The Ang Bagong Lipunan (ABL) series was issued by the Central Bank of the Philippines in line with Presidential Decree No. 168 dated April 2, 1973. The Ang Bagong Lipunan (literally means New Society) legend overprinted on the banknotes was meant to symbolize then President Marcos’ New Society which marked the era of reforms on social, economic and political structure of the government. This legend was the main difference in the design between ABL and Pilipino series. The lowest denomination in the ABL series was 2- piso and the highest was 100-piso. The 2-piso denomination carried the design elements of the 1- piso Pilipino series. The ABL banknote series was considered demonetized after February 2, 1996. - Ang Bagong Lipunan Series (1975-1998)  - FLORA AND FAUNA COIN SERIES - (1983 – 1998) - The Flora and Fauna series was - Ang Bagong Lipunan Coins (1975-1998) introduced in 1983 which included 2-piso coins. The coins featured portraits of renowned Filipino patriots and heroes on the obverse and rare species of fauna, flora, and marine life indigenous to the Philippines were represented on the reverse. This series circulated simultaneously with 10-centavo English, all denominations of Pilipino and Ang Bagong Lipunan series. - Flora and Fauna Series (1983 – 1998)  IMPROVED FLORA AND FAUNA COIN SERIES (1983 – 1998) - The sizes of the coins were reduced in 1991 thus the Flora Fauna Series was renamed Improved Flora and Fauna. Along with this improvement was theintroductionof5-pisocoin to replace the 5-piso banknote and save on the cost of printing considering that 5-piso banknote was the most widely circulated denomination. Other denominations of the Flora and Fauna such as the 50-, 10- , 5- and 1-sentimo were not anymore improved. This series together with the 10-centavo English, all denominations of Pilipino, Ang Bagong Lipunan and Flora and Fauna were considered demonetized after January 2, 1998. - Improved Flora and Fauna Series (1983 – 1998)  NEW DESIGN SERIES (1985-2017) - When Martial Law was lifted in 1981, the Central Bank started to print and mint an entirely new series of Philippine currency notes and coins which are contemporary and forward looking, adopting the latest trends of anti-counterfeiting features. - New Design Series (1985-2017) - New Design Series (1985-2017) New Generation Currency Series (2010-present) - In 2009, the Bangko Sentral ng Pilipinas announced that it launched a massive redesign for current banknotes and coins to further enhance security features and improve durability. - The new banknote design features famous Filipinos and iconic natural wonders. Philippine national symbols will also be depicted on coins. To provide a smooth transition from the New Design Series to New Generation Currency (NGC) series, BSP purposely retained some NDS features, such as, the size, predominant colors and the featured personalities in the NGC, except for the portrait of President Corazon Aquino which is an added portrait on the 500- piso note. - The BSP started releasing the initial batch of new banknotes on December 16, 2010. The BSP launched in 2020 the enhanced NGC banknotes that are more responsive to the needs of the elderly and the visually impaired, and feature the latest anti-counterfeiting technology. - The NGC and enhanced NGC banknotes are legal tender and may be used as payment for goods and services. - New Generation Currency Series (2010- present) - New Generation Currency Series (2010- present) New Generation Currency Coin Series 1000-PISO POLYMER BANKNOTE OBVERSE About the Topic I am quoting from a publication by Bangko Sentral ng Pilipinas entitled, The Bangko Sentral ng Pilipinas’ New Generation Currency Notes: Safeguarding the Integrity of the Philippine Currency by Maja Gratia L. Malic & Nenette E. Malabrigo. This details the new security features of the new banknotes that help consumers identify counterfeit bills from the real deal. A SUBTOPIC OF CHAPTER 2 2. Asymmetric Serial Number: Alphanumeric characters at the lower left and upper right PHILIPPINE BANK NOTES: NEW GENERATION corners of the note bearing one or two CURRENCY SECURITY FEATURES prefix letters and six to seven digits, with font For greater protection, the NGC notes were increasing in size and thickness. provided with four layers of security features: Level I: Security features that the public can easily recognize without the use of the particular instrument. These are the “look, feel, tilt” elements in the notes such as watermark, security thread, security fibers, and others. 5. See-Through Mark: The pre-Hispanic script Level II: Security features recognizable by (Baybayin) at the lower right corner of the face professional cash handlers/bank tellers with the of the note slightly above the value panel. This use of a magnifying lens or ultraviolet light. is seen in complete form only when the note is Examples are fluorophosporescent features, viewed against the light. This script means security fibers, and microprinting. “PILIPINO.” Level III: The hidden or covert security features reserved for the use of the Bangko Sentral. Level IV: Forensic security features for the use of law enforcers in testifying whether a banknote is genuine or counterfeit. These are detectable at specialized laboratories. Level I: Security features that the public can easily recognize without the use of special 6. Concealed Value: The denominational value instruments. These are the “look,” “feel, “and superimposed at the smaller version portrait at “tilt” elements in the notes, enumerated below. the upper left portion of the note. This becomes clearly visible when the note is rotated 45 1. Embossed prints: The embossed or raised degrees and slightly tilted. print nature of the ink deposition combined with the quality of cotton-based paper 7. Security Thread (Embedded or Windowed): gives the traditional banknote a unique Embedded thread that runs vertically across tactile effect that makes it the first and the the width of 20- and 50- piso notes when most important line of defense against viewed against the light. Also, the stitch-like counterfeiting. This can be felt over the metallic thread on the 100-, 200-, 500- and words “REPUBLIKA NG PILIPINAS,” 1000-piso notes which changes color from red denominational value in text, signatures, to green and bears and value panels particularly, the one the cleartext of “BSP” located at the lower right corner of the and the obverse. denominational value on the obverse and “BSP” on the reverse, both in repeated series.  8. Optically Variable Device (OVD) Patch: THE CONCEPT OF MONEY SUPPLY AND ITS Found only in 500- and 1000-piso notes, this MEASUREMENT patch is a reflective foil, bearing the image of The money supply refers to the sum of the Blue-naped parrot for 500-piso/clam with money available to the public in the South Sea pearl for 1000-piso, changes color economy at a point in time. from red to green when the note is rotated 90 Money supply always refers to the degrees. amount of money held by the public. (households , firms , institutions other than banks and the government) MONEY SUPPLY MODEL 9. Optically Variable Ink (OVI): Found only in the 1000-piso note, this embossed denominational value at the lower right corner of the face of the note changes color from green to blue when viewed at different angles. MONEY SUPPLY Level II: Security features recognizable by professional cash handlers/bank tellers with the use of a magnifying lens or ultraviolet light. Examples are fluorophosporescent features, security fibers, and microprinting. MONEY SUPPLY IN THE PHILIPPINES Money Supply M0 in Philippines decreased to 1891167.79 php million in July from 1927227.99 php million in June 2023. Topic 3 MONETARY SUPPLY AND STANDARD MONEY SUPPLY The money supply denotes the total amount of cash and cash equivalents in a country. The monetary base is a highly liquid form of money, which includes currency notes, coins, and commercial bank reserves.  FACTORS AFFECTING THE MONEY SUPPLY THE VELOCITY OF MONEY - The velocity of money is a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. Money supply M1 in Philippines decreased to THE FRACTIONAL RESERVE SYSTEM 6402502.80 php million in July from 6458484 php - Only a fraction of bank deposits are million in June of 2023 backed by actual cash on hand and available for withdrawal. MONEY MULTIPLIER Economists often calculate the money multiplier in order to know what to expect from the economy. The money multiplier formula is simply 1 / r where r is the reserve rat io. This means that the smaller r is, the bigger the money Money supply M2 in Philipppines decreased to multiplier is. Alternately, as r gets bigger, 15772122.20 php million from 15900479.53 php the money multiplier gets smaller, million in June of 2023 meaning there is less money supply in the economy. This is called an inverse relationship when two variables do opposite things. If the reserve rat io is 20% or 0.20, then the money multiplier would be 5 because (1.0 / 0.20= 5). In other words, for everyone dol lar invested, five dollars were generated. If the reserve ratio was lowered to 10% or 0.10, then the money multiplier would be 10 because (1.0 /0.10 = 10). This displays how the lower Money supply M3 in Philipppines decreased to the reserve ratio is, the more money is 16242048.35 php million from 16350431.37 php generated. million in June of 2023