FM 313 Monetary Policy and Central Banking PDF

FM 313 MONETARY POLICY AND CENTRAL BANKING FM MONETARY POLICY AND CENTRAL BANKING 313 NASH N. REGINIO 1|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Wel...

FM 313 MONETARY POLICY AND CENTRAL BANKING FM MONETARY POLICY AND CENTRAL BANKING 313 NASH N. REGINIO 1|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Welcome Message I am pleased to welcome you all to this course which focuses on the economics of central banking and the conduct of monetary policy. It focuses on the most important player in financial markets throughout the world: the central banks. Through the conduct of monetary policy, the course will examine the impact of monetary policy to the economy and to the business sector. This course pack is divided into three modules. Module 1 provides an overview of the financial system. The history of Philippine money is discussed in this module to showcase how our social, political, and cultural life are woven into multi-colored threads. Module 2 discusses the structure and organization of the Bangko Sentral ng Pilipinas. A discussion on how the money supply is determined in the economy. What causes it to change, and how might control of it be improved, are some of the questions that this module answers. Module 3 examines the tools of monetary policy used by the BSP to control the money supply and interest rates. It helps you understand how these policy tools has such an important impact on interest rates and economic activity. The modules will aid your quest to learning more about the financial industry and the implications of monetary policy stance on the business environment. You are expected to do a lot of reading, and use the materials you have read in preparing the course requirements. It is my earnest hope that this course will serve you well in your chosen field. I hope you will have a great learning experience this semester. 2|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Faculty Information: Faculty in-charge: NASH N. REGINIO Office: College of Business Administration Contact Information: [email protected] Consultation hours: Scheduled consultation through email or Messenger Getting help For academic concerns: Nash N. Reginio, MBA For administrative concerns: Dr. Gilbert M. Gordo For UVE concerns (KMD - Contact details) For health and wellness concerns (UAGC, HSD and OSAS - Contact details) 3|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Course Pack Structure 4|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Module Intended Learning Outcomes Lessons 1. Discuss the financial system. 2. Appreciate how our social, political, and cultural life are woven into multi-colored threads in the form of money 1. Overview of the financial system 1 Introduction 2. History of Philippine money 1. discuss the structure and 1. Organization of the The Bangko organization of the Bangko BSP 2 Sentral ng Sentral ng Pilipinas 2. The money supply Pilipinas 2. discuss how the money supply process is determined in the economy. 1. examine the tools of monetary policy used by the BSP to control the money supply and 1. Inflation targeting interest rates. 2. Other monetary The Tools of 3 2. appreciate how these policy operations Monetary Policy tools has such an important 3. Monetary policy across impact on interest rates and the years economic activity 5|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Module No. & Title MODULE 1 Introduction This module provides an overview of the financial system. The history of Philippine money is discussed in this module Module Overview to showcase how our social, political, and cultural life are woven into multi-colored threads. Module 1. Discuss the financial system. Objectives/Outcomes 2. Appreciate how our social, political, and cultural life are woven into multi-colored threads in the form of money 1. Overview of the financial system Lessons in the module 2. History of Philippine money 6|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Module No. and Title MODULE 1 Introduction Lesson No. and Title LESSON 1 Overview of the financial system 1. Understand the financial intermediation process 2. Discuss key players in the financial market. Learning Outcomes The lesson will take you about an hour and a half to Time Frame complete. Introduction As you begin your studies, you are probably asking, why is it important to study the financial market and the central bank? How do financial markets and financial intermediaries differ? How do funds move from those who have a surplus of funds to those who have shortage of funds? The purpose of this lesson is to find answers to those basic questions. Activity Answer the following. 1. What effect might a fall in stock prices have on business investment?? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 2. What effect might a rise in stock prices have on consumers’ decisions spend? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 3. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 7|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Analysis  What might be some factors affecting the prices of stocks?  Do price changes in stocks affect consumer decisions to spend? Why or why not?  Based on the activity above, differentiate financial markets from financial intermediaries. / Abstraction Figure 1 shows how funds flow in the financial system. Financial markets channel funds from households, firms, governments, and even foreigners who have surplus of funds by spending less than their income to those who have shortage of funds because they wish to spend more than their income. Such plays a critical role in the functioning of an economy. INDIRECT FINANCE Financial FUNDS FUNDS Intermediaries FUNDS LENDERS (SAVE) BORROWERS (SPEND)  Households  Businesses Financial  Businesses FUNDS markets FUNDS  Government  Government  Households  Foreigners  Foreigners DIRECT FINANCE Figure 1 Flow of funds through the financial system The primary lenders are households, but business enterprises and the government as well as foreigners and their government, sometimes also find themselves with excess funds and so lend them out. The most important borrowers are businesses and the government (particularly the national government), but households and foreigners also borrow to finance their purchases houses and cars. The arrows show that funds flow from lender to borrower via two routes. 8|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING The bottom portion of figure 1 shows the direct finance where borrowers borrow funds directly from lenders in financial markets by selling securities. This financial instrument is a claim on the borrower’s future income or assets. Securities are assets for the person who buys them but liabilities for the individual or firm that sells (issues) them. For example, if SM Corporation find itself in need of funds to pay for a construction of a new mall, it might borrow the funds from savers by selling them a bond, a debt security that promises to make periodic payments for a specified period of time, or a stock, a security that entitles the owner to a share of the company’s profits and assets. The upper part of figure 1 shows an indirect finance in which a financial intermediary, usually a bank, borrows funds from savers and then lends these funds to borrowers through loans. Why is this flow of funds (and the channelling) from lenders to borrowers so critical to the economy? In the absence of a financial market, a saver and a borrower might never meet. Both would be worse off. Without financial markets, it is hard to transfer funds from a person who has no investment opportunities to one who has them. Financial markets are thus essential to promoting economic efficiency. Financial markets are critical for producing an efficient allocation of capital (wealth, either financial or physical, that is employed to produce more wealth), which contributes to higher production and efficiency for the overall economy. Well-functioning financial markets also directly improve the well-being of consumers by allowing them to time their purchases better. They provide funds to young people to buy what they need (and will eventually be able to afford) without forcing them to wait until they have saved up the entire purchase price (Mishkin, 2006). The Philippine financial system The Philippine financial system is comparable to a number of developed countries in terms of financial institutions and the availability of a variety of financial instruments. The industry is composed of the categories of institutions listed in Table 1. Table 2 shows the physical network of the financial system, measured in the number of financial institutions. As of December 2019, the 27, 220 entities operating in the country’s financial system had a network of 12, 870 banks, 14,257 non-banks, and 92 other financial institutions. Non-banks include Investment Houses, Finance Companies, Investment Companies, Securities Dealers/Brokers, Pawnshops, Lending Investors, Non-Stock Savings and Loan Associations, Electronic Money Issuer, Remittance Agent, Credit Granting Entities, Credit Card Companies (under BSP supervision), Government NBFI, Electronic Money Issuer (EMI). Government insurance companies are the SSS and GSIS. 9|Page  FM 313 MONETARY POLICY AND CENTRAL BANKING Table 1 The Philippine financial system Type of institution Components 1. Banking institution Universal banks Commercial banks Thrift banks Rural banks Specialized government banks 2. Non-bank financial institutions A. with quasi-banking function Investment houses Financing companies B. without quasi-banking function Securities dealers/brokers Investment companies Insurance companies Lending investors Pawnshops Government non-bank financial institutions Credit card companies Non-stock savings and loans Source: BSP Table 2 Total number of financial institutions 2017 2018 2019 BSP Supervised Banks 11,793 12,364 12,870 Universal and commercial banks 6,483 6,642 6,915 Thrift banks 2,417 2,657 2,683 Savings banks 1,817 2,029 1,948 Private development banks 418 435 429 Stock savings and loans associations 178 188 306 Microfinance 4 5 0 Rural banks 2,893 3,065 3,272 Non-banks 17,011 12,540 14,257 Others Government Insurance Companies 2 2 2 Private Insurance Companies 90 90 90 Total 28,899 24,998 27,220 Source: BSP 10 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING The Philippine financial market The exchange of assets in the financial system is executed in specialized financial markets. Traditionally, the financial system used to have only the money market and the capital market. With the advent of new product offerings and complex financial instruments, the financial system can now be subdivided into four major markets: money market, capital market, foreign exchange market, and the derivatives market (figure 2) Foreign Capital exchange market market Money Derivative market market PHILIPPINE FINANCIAL SYSTEM Figure 2 The Philippine financial market 11 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Application Go to http://www.bsp.gov.ph/downloads/Learning/comics3.pdf and read the comics that tackles the different types of banks in the country and the nature of services they provide to the public. After reading, identify the different types of bank and discuss their differences. Well done! You just finished the first lesson of Module 1. If you are ready to proceed, the next lesson will discuss the history of the Philippines money. 12 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Module No. and Title MODULE 1 Introduction Lesson No. and Title LESSON 2 History of Philippine Money 1. Understand the timeline in the development of Philippine money. Learning Outcomes 2. Appreciate how our social, political, and cultural life are woven into multi-colored threads in the form of money. The lesson will take you about an hour and a half to Time Frame complete. Introduction Philippine coins and money are the treasure of our nation. They are woven into the fabric of our social, political, and economic life. From its early bead-like form to the paper notes and coins that we know today, our money has been a constant reminder of our journey through centuries as a people relating with one another and with other peoples around the world. Activity Answer the following. 1. How important for a nation to revise or redesign its coins and banknotes? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 2. How important are the designs and features of a nation’s currency? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 13 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Abstraction Pre-Hispanic Era Source: BSP Long before the Spaniards came to the Philippines, trade among the early Filipinos and with traders from the neighboring lands like China, Java, Borneo, and Thailand was conducted through barter. The inconvenience of the barter system led to the adoption of a specific medium of exchange – the cowry shells. Cowries produced in gold, jade, quartz and wood became the most common and acceptable form of money through many centuries. Since the Philippines is naturally rich in gold, it was used in ancient times for barter rings, personal adornment, jewelry, and the first local form of coinage called Piloncitos. These had a flat base that bore an embossed inscription of the letters “MA” or “M” similar to the Javanese script of the 11th century. It is believed that this inscription was the name by which the Philippines was known to Chinese traders during the pre-Spanish time. Spanish Era (1521-1897) The cobs or macuquinas of colonial mints were the earliest coins brought in by the galleons from Mexico and other Spanish colonies. These silver coins usually bore a cross on one side and the Spanish royal coat-of-arms on the other. The Spanish dos mundos were circulated extensively not only in the Philippines but the world over from 1732-1772. Treasured for its beauty of design, the coin features twin crowned globes representing Spanish rule over the Old and the New World, hence the name “two worlds.” It is also known as the Mexican Pillar Dollar or the Columnarias due to the two columns flanking the globes. 14 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Source: BSP Due to the shortage of fractional coins, the barrillas, were struck in the Philippines as ordered by the Royalty of Spain. The barrilla, a crude bronze or copper coin worth about one centavo, was the first coin struck in the country. The Filipino term “barya”, referring to small change, had its origin in barrilla. Coins from other Spanish colonies also reached the Philippines and were counterstamped to legalize their circulation in the country. Gold coins with the portrait of Queen Isabela were minted in Manila. Silver pesos with the profile of young Alfonso XIII were the last coins minted in Spain. The pesos fuertes, issued by the country’s first bank, the El Banco Espanol Filipino de Isabel II, were the first paper money circulated in the country. Revolutionary Period (1898-1899) Asserting its independence, the Philippine Republic of 1898 under General Emilio Aguinaldo issued its own coins and paper currency backed by the country’s natural resources. At the Malolos arsenal, two types of two-centavo copper coins were struck. One peso and five peso revolutionary notes printed as Republika Filipina Papel Moneda de Un Peso and Cinco Pesos were freely circulated. These were handsigned by Pedro Paterno, Mariano Limjap and Telesforo Chuidian. With the surrender of General Aguinaldo to the Americans, the currencies were withdrawn from circulation and declared illegal currency. Source: BSP 15 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING American Period (1900-1941) Source: BSP With the coming of the Americans 1898, modern banking, currency and credit systems were instituted making the Philippines one of the most prosperous countries in East Asia. The Americans instituted a monetary system for the Philippine based on gold and pegged the Philippine peso to the American dollar at the ratio of 2:1. The US Congress approved the Coinage Act for the Philippines in 1903. The coins issued under the system bore the designs of Filipino engraver and artist, Melecio Figueroa. Coins in denomination of one-half centavo to one peso were minted. The renaming of El Banco Espanol Filipino to Bank of the Philippine Islands in 1912 paved the way for the use of English from Spanish in all notes and coins issued up to 1933. Beginning May 1918, treasury certificates replaced the silver certificates series, and a one-peso note was added. The Japanese Occupation (1942-1945) Source: BSP 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 16 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING up reserves, thus, Filipinos dubbed it “Mickey Mouse” money. During the worst inflation in Philippine history, Filipinos would go to the market laden with bayongs of Mickey Mouse bills, since one duck egg cost 75 pesos, and a box of matches more than 100 pesos. On the other hand, Guerrilla Notes or Resistance Currencies which are in low denominations, were issued by different provinces and, in some instances, municipalities through their local currency boards to show resistance against the Japanese occupation. The Philippine Republic Source: BSP A nation in command of its destiny is the message reflected in the evolution of Philippine money under the Philippine Republic. Having gained independence from the United States following the end of World War II, the country used as currency old treasury certificates overprinted with the word “Victory”. 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 Bureau of Mint. The “Filipinization” of the Republic coins and notes began in the late 60’s and is carried through to the present. In the 70’s, the Ang Bagong Lipunan (ABL) series notes were circulated, which were printed at the Security Printing Plant starting 1978. A new wave of change swept through the Philippine coinage system with the Flora and Fauna Coin Series initially issued in 1983. The New Design Series of banknotes issued in 1985 replaced the ABL series. Ten years later, a new set of coins and notes were issued carrying the logo of the Bangko Sentral ng Pilipinas. 17 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING English series banknotes (1949-1974) When the American liberation forces arrived in 1944, they brought the currency called the Victory Series No. 66. With the creation of the Central Bank of the Philippines in 1949, came the issuance of the English Series. They were in denominations 1, 2, 5, 10, 20, 50, 100, 200 and 500 pesos; all bearing portraits of Filipino heroes on the obverse, vignettes in Philippine history on the reverse, and worded in English language. On the other hand, all denominations of the Victory Series No. 66 were overprinted with “Central Bank of the Philippines” on the reverse side, and remained legal tender until July 30, 1964. The two highest denominations of the English Series were later withdrawn from circulation on December 31, 1957, pursuant to R.A. No. 1516. Only notes of 1 up to 50 pesos continued to be printed until 1961. Small-denomination notes were also printed from 1951 through 1957 (5-, 10-, 20- and 50- centavos) to replace the US-Filipinas metallic coins. In 1955, the Half-Peso note of bigger dimensions also went into circulation. On January 5, 1970, these small notes ceased to be legal tender. Pursuant to Presidential Decree No. 378, all banknotes of the English Series were considered demonetized after February 28, 1974. Source: BSP 18 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING English series coins (1958-1979) In 1958, the centavo notes were discontinued and a new, entirely base metal coinage was introduced, consisting of bronze 1 centavo, brass 5 centavos and nickel- brass 10, 25 and 50 centavos. The half- peso ceased to exist; the 25-centavo coin replaced the 20- centavo note; 50-, 10- and 5-centavo denominations were maintained. This series was considered demonetized after August 31, 1979, except for the 10-centavo denomination that was considered demonetized only after January 2, 1998. Pilipino series banknotes (1969-1974) 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 toward mid-1969. This series called Pilipino series came in denominations 1, 5, 10, 20, 50 and 100. The first five notes have been widely circulated while the issuance of the 100-piso bills was limited. Together with the English Series, this Pilipino Series was considered demonetized after February 28, 1974 pursuant to PD 378. Source: BSP 19 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Pilipino series coin (1967-1998) In 1967, the coinage was altered to reflect the use of Filipino names for the currency units. The “Pilipino” coins bore portraits/profiles of Filipino heroes with legends inscribed in Pilipino, the national language. New one-piso coins were put in circulation to replace the one-peso notes. The coins were demonetized after January 2, 1998. Ang Bagong Lipunan series banknotes (1973-1993) 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. 20 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Ang Bagong Lipunan series coins (1975-1998) In 1975, the "Ang Bagong Lipunan" series was introduced with different designs, specifications and denominational mix from the Pilipino series. Aluminum replaced bronze and cupro-nickel replaced nickel-brass coins. The 5-piso coin was introduced while the 50- sentimo coin was deleted in the series. The entire series of ABL coins was considered demonetized after January 2, 1998. Flora and Fauna series (1983-1998) The Flora and Fauna series was 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. 21 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Improved Flora and Fauna series (1991-1998) 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 the introduction of 5-piso coin 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. New Design Series (1985-2007) 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 trend of anti-counterfeiting features. On June 12, 1985, the BSP issued the New Design Series starting with the 5-piso banknote with the face of Emilio Aguinaldo on the obverse side. The following month, the 10-piso banknote with the face of Apolinario Mabini on the obverse side was issued. In early 1986, a new 20-piso banknote appeared. After the 1986 People Power Revolution and the new 1987 Constitution was promulgated, the 500-piso banknote with the face of Benigno Aquino, Jr. on the obverse side was introduced. In 1991, the BSP issued for the first time a 1000-piso banknote, containing on the obverse side the composite portraits of Jose Abad Santos, Josefa Llanes Escoda and Vicente Lim. The second major political upheaval called EDSA II in 2001 was depicted on the reverse side of the 200-piso showing Gloria Macapagal-Arroyo being sworn into office at the EDSA Shrine. She is the first president whose image has been included in a banknote while in office. On the obverse side of the banknote is the portrait of his father, Diosdado Macapagal. The 200-piso NDS which was issued in 2002, was the last denomination to be added in the series. 22 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING In the NDS, the country’s social and political development and economic achievements were highlighted. The design was made more distinctly Pilipino through the adoption of ethnic designs at the background of all the denominations instead of the embellishing lacework patterns from western culture that were depicted in the earlier series. The seal of the Central Bank of the Philippines in the obverse and the size of the Pilipino series had been retained. After the passage of the New Central Bank Act of 1993, the New Design Series bears the new seal of the Bangko Sentral ng Pilipinas. In the latter part of 1997, the revised 10-piso banknote, with portraits of Apolinario Mabini and Andres Bonifacio on the obverse side, was issued. In 1998, the 100,000-piso Centennial banknote, measuring 8.5"x14", accredited by the Guinness Book of World Records as the world's largest legal tender note was issued in a limited quantity of 1000 pieces to commemorate the celebration of the Centennial of Philippine Independence. Along with this was the launching of the 2000-piso Centennial Note, measuring 216 mm x 133 mm and bearing the signature of President Joseph E. Estrada, on December 1, 1998. Also, in 1998, the year of printing was added at the bottom of the denomination value located at the upper left corner of the obverse. In 1999, the names of the signatories on the bills were added starting with banknotes featuring the signature of President Joseph Estrada. During the Estrada Administration, the practice in use since the Commonwealth, of reproducing the signature of the President of the Philippines over the legend "President of the Philippines" was abandoned in favor of explicitly stating the president's name. 23 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Meanwhile, in the latter part of 1990’s, colored reproduction machines became available in commercial quantity and has become a big threat to the integrity of the currency. As a result, in 2001, BSP decided to enhance the security features of the of 1000, 500, and 100- piso banknotes, including the 200-piso which was issued in 2002, by incorporating the iridescent band and the windowed security thread to combat counterfeiting made out of colored copiers. Pursuant to BSP Circular No. 954, Series of 2017, the NDS banknotes were demonetized after 30 June 2017. 24 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING The BSP Coin Series (1995-Present) In 1995, a new set of coins and notes was issued which carried the logo of the new BSP: 5- and 1-piso and 25-, 10-, 5- and 1-sentimo. On July 10, 2001, BSP issued the 10-piso coin for general circulation to commemorate its 8th year anniversary. It has the profiles of Andres Bonifacio and Apolinario Mabini in a con-joint or in tandem manner on the obverse side. The reverse side bears the seal of the Bangko Sentral ng Pilipinas which is consistent with the common reverse design of the other six denominations. This has been an additional denomination to the current coin circulation and a replacement for the 10-piso NDS banknote. 10-piso 5-piso 2-piso 25-sentimo 10-sentimo 5-sentimo 1-sentimo New Generation Currency Coin Series On 26 March 2018, the BSP released the New Generation Currency (NGC) Coin Series comprised of the 10-Piso, 5-Piso, 1-Piso, 25-Sentimo, 5-Sentimo and the 1-Sentimo into circulation. These NGC coins feature three national heroes (Apolinario Mabini in the 10-Piso, Andres Bonifacio in the 5-Piso and Jose Rizal in the 1-Piso), a stylized three stars and a sun in the 25-, 5- and 1-Sentimo, the BSP logo, and endemic flora consistent with the design of the NGC Banknote Series that highlights Philippine fauna. The NGC Coin Series and the BSP Coin-Ed Campaign were among the top three finalists in the Best New Circulating Coins and Best Public Education Program categories, respectively, awarded by the International Association of Currency Affairs (IACA) during the Excellence in Currency 2019 Coin Awards at the biennial Coin Conference in Rome, Italy on 15 October 2019. On 17 December 2019, the BSP released the new 20-Piso NGC coin and the enhanced 5- Piso NGC coin with nine sides which are the latest to be circulated under the BSP’s NGC Coin Series. The bi-color 20-Piso coin retains major elements of the 20-piso banknote. The obverse side of the coin features Manuel L. Quezon, while the reverse side shows the BSP logo, the Malacañan Palace, and the Nilad plant. 25 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING The NGC Coin Series design features enhanced the aesthetics and security of the coins. In particular, micro-printed details using laser-engraving technology were included in the 20- Piso, 10-Piso and 5-Piso, which makes it difficult for these coins to be duplicated using traditional coin counterfeiting methods. The metallic composition of the NGC coins also discourages the illegal practice of hoarding large quantities of coins for the extraction of their metal content. The new 20-Piso and enhanced 5-Piso NGC coins shall co-exist as legal tender with the currently-circulating 20-Piso NGC banknotes and round 5-Piso NGC coins, which will be removed from circulation through natural attrition. The BSP enjoins the public to properly use and recirculate our Philippine coins for their economic and cultural value. A link for a short video clip can be watched presenting the NGC Coin Series design. https://www.bsp.gov.ph/Coins%20and%20Notes/Coins/NGCCS/ngc_coins_20.mp4 The New Generation Currency Series Banknotes (2010-Present) In 1995, a new set of coins and notes was issued 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 members of the numismatic committee include Bangko Sentral Deputy Governor Diwa Guinigundo and Dr. Ambeth Ocampo Chairman of the National Historical Institute. The new banknote design features famous Filipinos and iconic natural wonders. Philippine national symbols will be depicted on coins. To provide a smooth transition from the New Design Series to New Generation Currency 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 NGC will co-exist with the NDS approximately until 2014, while BSP is building up its capability to print and produce NGC banknotes with the latest anti-counterfeiting security features incorporated through advanced technologies, benchmarked worldwide. 26 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING Color plays an important part in the design, accentuating key elements such as value numerals, seals and note edges. The inclusion of large intaglio printed numbers on the front differentiates each denomination to provide assistance for the visually impaired. A link for a short video clip can be watched presenting the NGC Banknote Series design https://www.bsp.gov.ph/Coins%20and%20Notes/New%20Generation%20Curren cy%20Banknotes/engc.mp4 Demonetization of the Old Banknote Series Demonetization is the process by which a central bank removes the monetary value of a legal tender currency it issues. Demonetized currencies are no longer accepted as payment for goods and services. The process of demonetization is widely practiced throughout the world, though reasons for demonetizing can be varied. Among the common reasons are the following:  The prevention of counterfeiting  Benchmarking with other countries  A change in the type or form of government  A change in the type of currency as part of political or social reform  Redefining the value of money in response to hyperinflation  Shift to a single design series of currency in countries where more than one series are in circulation The BSP is demonetizing the old banknote series as a way to safeguard the integrity of our currency. As a matter of practice, central banks around the world change the design of their currencies that have been in circulation for over 10 years. In the case of the Philippines the 27 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING old banknote series, introduced in 1985 or 30 years ago, is being replaced by the New Generation Currency (NGC) series which was launched in 2010. Demonetization is within the BSP’s jurisdiction as stated in RA No. 7653, or The New Central Bank Act. Application Get a 100-, 500-, and 1000-peso bill. What are the ways to detect counterfeit money? What are the security features found in these banknotes? Great job! You just finished Module 1. If you are ready, you may proceed to Module 2 28 | P a g e  FM 313 MONETARY POLICY AND CENTRAL BANKING MODULE SUMMARY  Financial markets are critical for producing an efficient allocation of capital (wealth, either financial or physical, that is employed to produce more wealth), which contributes to higher production and efficiency for the overall economy.  Well-functioning financial markets also directly improve the well-being of consumers by allowing them to time their purchases better.  The exchange of assets in the financial system is executed in specialized financial markets. Traditionally, the financial system used to have only the money market and the capital market.  Money plays a very important role in the financial system.  Philippine coins and money are the treasure of our nation. They are woven into the fabric of our social, political, and economic life.  The BSP is demonetizing the old banknote series as a way to safeguard the integrity of our currency. REFERENCES https://www.bsp.gov.ph Mishkin, F.S. (2016). The economics of money, banking, and financial markets. Pearson Mishkin, F.S. and Eakins, S.G. (2016). Financial markets and institutions, 8ed. Pearson Education Ltd Santos, R.R., et al (2018). Essentials of investments in the Philippine capital market. 3ed. Las Piñas Cit: Southville Global Education Netwrok 29 | P a g e FM 313 MONETARY POLICY AND CENTRAL BANKING 30 | P a g e