PMF 4 Module 1 PDF

SAINT JOSEPH COLLEGE, MAASIN, LEYTE
Maasin City, Southern Leyte
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION
Module I (Pre-Midterm)
For
PMF 4 – E & F
1st Semester, AY 2020-2021
Prepared by
Mr. Nilo L. Bia, Jr., MBA

Instructor
PMF 4 – Monetary Policy & Central Banking Nilo L. Bia, Jr., MBA Page - 1 -
Course Description
This course is designed with two parts, the monetary system and central banking. It is
designed to develop an understanding on how the economy and the financial system are
being affected by the different monetary policies. Under this, an overview on the importance of
money, money creation, barter, payments, monetary standards, Philippine peso, demand and
supply of money are discussed. Central banking covers its development, importance, functions,
operations and also central banking outside the Philippines. Important parts of the New Central
Bank act are also mentioned in the course.
Grading System
Each student shall be assessed on the following:
Pre-Midterm/Pre-Final Examination ------------------------------------ 20%

Midterm/Final Examination ----------------------------------------------- 20%
Activities/Oral Examination and Class participation ------------- 30%
Quizzes, Exercises and Assignments ----------------------------------- 30%
TOTAL: 100%
Learning Outcomes
At the end of the semester, the students must be able to:
1. Elaborate the concept and development of money;

2. Develop critical and analytical skills on the concept of the Philippine monetary standard,
monetary system, monetary policy and in general the concept of money in the nation’s
economy;
3. Explain and understand the role of the central bank and the IMF to the nation’s economy;
Module 1
Topics:
A. Money and its Evolution.

B. Monetary Standard.
C. Monetary System.
CHAPTER 1 – MONEY AND ITS EVOLUTION
Objectives
At the end of the lesson, you should be able to:
1. Discuss the origin and concept of money;

2. Elaborate on the functions and features of money and how it serves men; and
3. Differentiate the different forms of money and apply their utility in modern times.
Introduction
Man’s civilization has advanced by leaps and bounds, creating the need for money. In the
early years of civilization, there was no need for money. People simply exchanged what they had for
what they wanted. This exchange is termed as bater. Nowadays, money is important. If one has
money, he can buy a house, a car, a big piece of land, or even a farm. He can put up his own
business so that he can be his own boss. As the saying goes, money talks.
1.1 The Concept and Development of Money
Origin of the Word “Money”
The development of the concept of money begun with the problem of men with regard to
the medium of exchange. Men used several mediums of exchange from simple seashells to the more
complex metals. They realized that there was a need for a medium of exchange, an established
integrity in business and personal transactions, and a sense of security and order in the economy.
Money was derived from the Latin word moneta, surname of the Roman goddess Juno.
Moneta refers to a mint or place for coining money. According to the etymonline.com. it also comes
from the Old French monoie and the Modern French monnaie, meaning money, coin, currency, or
change.
Money: Definition
Money is anything authorized by law to be generally accepted as legal tender. It is used as a

medium of exchange and a standard of value in payment of goods and services.
Origin and the Different Stages of Evolution of Money
Barter
Money, as we know it today, is the result of a long process.
At the beginning, there was no money. People engaged in barter, the exchange of
merchandise for merchandise, without value equivalence.
Then, a person catching more fish than the necessary for himself and
his group, exchanged his excess fish for the surplus of another person who,
for instance, had planted and harvested more corn that what he would
need. This elementary form of trade prevailed at the beginning of
civilization, and may be found today among people of primitive
economies, in regions where difficult access makes money scarce and,
even in special situations, where people barter items without regard for their
equivalence in value. This is the case, for instance, of a child who
exchanges with his friend an expensive toy for another of lesser value, which
it treasures.
Goods used in barter are generally in their natural state, in line with the environment conditions
and activities developed by the group, corresponding to elementary needs of the group’s members.
This exchange, however, is not free from difficulties, since there is not a common measure of value
among the items bartered.
First Stage – Commodity Money
Some commodities, for their utility, came to be more sought than others are.
Accepted by all, they assumed the role of currency, circulating as an element of exchange
for other products and used to assess their value. This was the commodity money.
Cattle, mainly bovine, was one of the mostly used, and had the
advantages of moving for itself, reproducing and rendering services,
although there was the risk of diseases and death.
Salt was another commodity money, difficult to obtain, mainly

in the interior part of continents, also used as a preservative for food.
Both cattle and salt left the marks in the Portuguese language of their
function as an exchange instrument, as we keep using words such
as pecunia (money) and pecúlio (accumulated money) derived
from the Latin work pecus (cattle). The word capital (asset) comes
from the Latin capita (head). Similarly, the work salário (salary,
compensation, normally in money, due by the employer for the
services of an employee) originates from the use of sal [salt], in Rome,
for payment of services rendered.
Other parts of the world also used, among other
commodity moneys such as Wampum (beads), cowrie shell,
whales teeth, corn, tea, sugar, cocoa, tobacco and cloth in
the 17th Century due to the almost complete lack of money.
Later, commodity money had different problem like: Storing problem; Durability problem;
transportation problem and Divisibility problem.
Second Stage – Metallic Money
As soon as man discovered metal, it was used to made utensils

and weapons previously made of stone.
For its advantages, as the possibility of treasuring, divisibility, easy

of transportation and beauty, metal became the main standard of
value. It was exchanged under different forms. At the beginning, metal
was used in its natural state, and later under the form of ingots and, still,
transformed into objects, from rings to bracelets.
The metal so traded required weight assessment and assaying of its purity at each transaction.
Later, metal money gained definite form and weight, receiving a mark indicating its value, indicating
also the person responsible for its issue. This measure made transactions faster, as it saved the trouble
of weighing it and enabled prompt identification of the quantity of metal offered for trade.
Money in the Form of Objects
Metal items came to be very valued commodities.
As its production required, in addition to knowledge of melting,

knowing where the metal could be found in nature, the task was not at the
reach of everyone.
The increased value of these objects led to its use as money and the
circulation as money of small-scale replicas of metal objects.
This is the case of the knife and key coins found in the East
and the talent, a copper or bronze coin with the form of an animal
skin that circulated in Greece and Cyprus.
Coinage
Coinage is the conversion of metals into coins. The place where metals are made into coins is
known as mint. With coinage, metals were made into coins of a fixed weight.
Ancient Coins
In the 7th century B.C. the first coins resembling current ones appeared: they were small metal
pieces, with fixed weight and value, and bearing an official seal that is the mark of who has minted
them and also a guaranty of their value.
Gold and silver coins are minted in Greece, and small oval ingots are used in Lydia, made of a gold
and silver alloy called electrum.
Coins reflect the mentality of a people and their time.

One may find political, economic, technological and
cultural aspects in coins. Through the impressions found in
coins, we are able to know the effigy of personalities who
lived centuries ago. Probably, the first historic character to
have his effigy registered in a coin was Alexander the Great,
of Macedonia, around the year 330 B.C.
At the beginning, coin pieces were made by hand in a very coarse way, had irregular edges,
and were not absolutely equal to one another as today’s ones.
Gold, Silver and Copper
The first metals used in coinage were gold and silver. Employment of these metals happened
for their rarity, beauty, immunity to corrosion, economic value, and for old religious habits. In primeval
civilizations, Babylonian priests, knowledgeable about astronomy, taught to people the close
relationship between gold and the sun, silver and the moon. This led to a belief in the magic power of
such metals and of objects made with them.
Minting of gold and silver coins was common for many

centuries, and pieces were guaranteed by their intrinsic
value, that is to say, by the trade value of the metal used in
their production. Then, a coin made with twenty grams of
gold was exchanged for goods of even value
For many centuries, countries minted their most highly valued coins in gold, using silver and
copper for lesser value coins. This system was kept up to the end of the last century, when
cupronickel, and later other metallic alloys, became used, and coins came to circulate for their
extrinsic value, that is to say, for their face value, which is independent from their metal content.
With the appearance of paper money, minting of metal coins was restricted to lower values,
necessary as change. In this new role, durability became the most requested quality for coins. Large
quantities of modern alloys appeared, produced to support the high circulation of change money.
Third Stage – Paper Money
The Chinese invented printing and use of paper money

during the Tang Dynasty (618-906 AD).
In the Middle Ages, the keeping of values with

goldsmiths, persons trading with gold and silver items, was
common. The goldsmith, as a guaranty, delivered a receipt.
With time, these receipts came to be used to make payments,
circulating from hand to hand, giving origin to paper money.
With time, in the same form it happened with coins, the government came to conduct the
issue of notes, controlling counterfeits and securing the power to pay. Paper money can be:
1. Representative Paper Money – it is that money which is fully backed by equivalent metallic
reserves.
2. Convertible Paper Money – Money that is convertible into coins on demand.
3. Fiat Paper Money – Money which is not redeemable or convertible into Gold or Silver on
demand. It is accepted because it is declared legal tender by the issuing authority and has
general acceptance as a medium of exchange. The intrinsic value of Fiat money is null.
Fiat means command of the sovereign. It came from the Latin word fiat, meaning “Let it
be done”. It was so called because money was given value by the government through a fiat
or decree, which means that money became legal tender.
Currently, all countries have their central bank in charge of issuing coins and notes.
Paper money experienced an evolution regarding the technique used in their printing. Today,
the printing of notes uses especially prepared paper and several printing processes, which are
complementary to each other, assuring to the final product a great margin of security and durability
conditions.
Different Shapes
Money has greatly changed its physical aspect along the centuries.
Coins had already very small sizes, as the stater, which

circulated in Aradus, Phoenicia, and some reached large sizes,
such as the thaler, a 17th century Swedish copper piece.
Although today the circular form is used in almost the whole world, there had been oval,
square, polygonal and other shapes for coins. They were also minted in different non-metallic
materials, such as wood, leather and even porcelain. Porcelain coins circulated, in this century, in
Germany, when the country was under the economic hardships caused by the war.
Bank notes were generally of rectangular lengthwise format, although with great variety of
sizes. There are, still, square notes and those with inscriptions written in the vertical.
Bank notes depict the culture of the issuing country, and we may see in them characteristic
and interesting motifs as landscapes, human types, fauna and flora, monuments of ancient and
contemporary architecture, political leaders, historical scenes, etc.
Bank notes bear, in addition, inscriptions, generally in the country’s official language, although
several also bear the same inscriptions in other idioms. The inscriptions, frequently in English, aim at
permitting the piece to be read by a larger number of people.
Plastic (Polymer) Money
Unlike the commonly known plastic money or debit/credit/cash cards (to be discussed later),
the newly invented plastic money is made of polymer. Plastic money is actual cash made of super-
resistant polymer film (instead of paper). Polymer money feels like a regular paper bill, but lasts
longer.
Australia was the first country to develop and use polymer notes in general circulation in 1988
after the significant research and development done by the Commonwealth Scientific and Industrial
Research Organization (CSIRO) and the Reserve Bank of Australia.
Polymer is more durable, harder to counterfeit, and environment-friendly. It is less polluting,

and the production is more energy efficient. It is also recyclable at the end of its useful life.
However, using polymer notes has disadvantage. When polymer notes come in contact with
water or some other liquids, they tend to stick together. Moreover, they are not suitable for folding.
Fourth Stage – Credit Money
Credit money is monetary value created as the result of some future obligation or claim. As
such, credit money emerges from the extension of credit or issuance of debt. In the
modern fractional reserve banking system, commercial banks are able to create credit money by
issuing loans in greater amounts than the reserves they hold in their vaults.
There are many forms of credit money, such as IOUs, checks, bank drafts, bonds and money
markets. Virtually any form of financial instrument that cannot or is not meant to be repaid
immediately can be construed as a form of credit money. It is convenient, safe and easily
convertible into cash. It’s like near money.
Credit money is the creation of monetary value through the establishment of future claims,
obligations, or debts.
These claims or debts can be transferred to other parties in exchange for the value embodied in
these claims.
Fractional reserve banking is a common way that credit money is introduced in modern
economies
How Credit Money Works
According to recent research done in economic history, anthropology, and sociology,

scholars now believe that credit was the first form of money, preceding coin or paper currency. In
ancient times, some of the earliest writings found have been interpreted to be tallies of debts owed
by one party to another - before the invention of money itself. This form of value obligation - i.e. I owe
you X - is essentially credit money as soon as that obligation can be transferred to somebody else in
kind. For instance, I can owe you X, but you can transfer your claim against me to your brother, so
now I owe your brother X. You and your brother have essentially transacted in credit money.
During the crusades of the middle ages, the Knights Templar of the Roman Catholic church, a
religious order that was heavily armed and dedicated to holy war, held valuables and goods in trust.
This led to the creation of a modern system of credit accounts that is still prevalent today. Public trust
has waxed and waned in credit money institutions over the years, depending on economic, political,
and social factors.
Credit Money and Fractional Reserve Banking
"Fractional reserve" refers to the fraction of deposits held in reserves. For example, if a bank has
Php500 million in assets, it must hold Php50 million, or 10%, in reserve. It can, however, lend out Php450
million as essentially new credit money.
Analysts reference an equation referred to as the multiplier equation when estimating the
impact of the reserve requirement on the economy as a whole. The equation provides an estimate
for the amount of money created with the fractional reserve system and is calculated by multiplying
the initial deposit by one divided by the reserve requirement. Using the example above, the
calculation is Php500 million multiplied by one divided by 10%, or Php5 billion.
Checks
As coins and notes ceased to be convertible into precious metal, money became more
dematerialized and assumed abstract forms.
One of these forms is the check that, for simplicity of use and security offered, is being
adopted by an increasing number of people in their day-by-day activities.
Sample of a Check
This document, by which one orders payment of a certain amount to its bearer or to a person
mentioned in it, aims mainly at transactions with bank deposits.
The important role played today in the economy by this form of payment is due to the
innumerable advantages offered by it, speeding transactions with large sums, avoiding hoarding
and diminishing the need of change by being a document completed by hand in the necessary
amount.
Money, whatever the form it has, is not valuable for itself, but for the goods and services it may
purchase. It is a sort of security giving its bearer the faculty of being creditor of society and take
advantage, through his or her purchasing power, of all conquests of modern man.
Money was not, hence, invented by a stroke of genius, but stemmed from a need, and its
evolution reflects, at each time, the willingness of man to harmonize its monetary instrument to the
reality of its economy.
Fifth Stage – Plastic or Electronic Money
Plastic or Electronic money (also known as e-money, electronic cash, electronic currency,
digital money, digital cash or digital currency) refers to money scrip which is exchanged only
electronically. Typically, this involves use of computer networks, the internet and digital stored value
systems.
The hard plastic cards used in everyday exchange transactions in place of actual bank notes
are called plastic or electronic money. They come in various classifications as credit card, debit card,
cash card, prepaid cash card, and store card. These cards are more portable than money and less
risky than carrying large sums of money. They are easier to use because one’s transactions is not paid
immediately. Instead, they allow one to “lengthen” or “stretch” his budget.
Credit Card
Credit card allows the owners to buy products on credit from different stores and
establishments, in lieu of cash or money, except that it has a credit limit, that is, the maximum amount
that can be charged to the credit card. Examples of credit cards are American Express, Visa,
Mastercard, and Discover.
Samples of a Credit Card
Debit Card
The bank where the account is maintained issues the debit card. Unlike credit card, payments
using a debit card are immediately charged to the cardholder’s bank account, instead of paying
the card at a later date. The holder can purchase goods or services up to the amount that is in the
account to where it is linked.
Samples of a Debit Card
Cash Card
Cash card only allows withdrawal of money through an Automated Teller Machine (ATM). In
short, it is used for ATM transactions only. A cash card can be used as a debit card as well. It is
convenient that the holder need not to stay in line inside the bank to withdraw money.
Sample of a Cash Card
Prepaid Cash Card
Prepaid cash card, as the name implies, is paid by buyers upon purchase. This card includes:
1. Gift Card/Certificate
Gift card is a prepaid cash card that can be given as gift so that the recipients can
choose what they want as a gift. This card can be a specific prepaid cash card issued by the
store where it can be used for purchase. It can also be issued by financial institutions and can
be used at any store, just like a credit card; however, the amount that can be spent is fixed.
Sample of a Gift Certificate
2. Store Card
Store card is like a credit card, generally issued by a particular store and can be used
for purchase in the same store. This is exactly the same as the prepaid cash card discussed in
the previous section.
Samples of a Store Card
3. Multi-currency Prepaid Card
In September 2013 East West Bank launched its Travel Money Card a Southeast Asia’s
first multi-currency prepaid card. The EastWest Travel Money Card is a multi-currency
reloadable prepaid card that you can use to pay for goods & services or to withdraw cash
from an Automated Teller Machine (ATM) when you travel abroad. It gives you the benefits of
security and convenience as opposed to carrying cash.
The EastWest Travel Money Card is currently available for loading simultaneously of up
to six (6) foreign currencies, namely: US Dollar, Euro, Hong Kong Dollar, British Pound, Australian
Dollar and Japanese Yen.
1.2 Functions of Money
Three functions of money are:
1. Medium of exchange: Money can be used for buying and selling goods and services. If there
were no money, goods would have to be exchanged through the process of barter (goods
would be traded for other goods in transactions arranged on the basis of mutual need). For
example: If I raise chickens and want to buy cows, I would have to find a person who is willing
to sell his cows for my chickens. Such arrangements are often difficult. But Money eliminates the
need of the double coincidence of wants.
2. Unit of account: Money is the common standard for measuring relative worth or values of
goods and service in the exchange process. In this connection, it is appropriate to take note of
the meaning of the term “unit of account” as “the abstract unit by which we measure, record,
and compare market values. Here in the Philippines, the unit of monetary value is the “Peso”
which is represented by the sign ”₱” and divided into one hundred equal parts called “centavos”.
3. Store of value: Money is the most liquid asset (Liquidity measures how easily assets can be
spent to buy goods and services). Money’s value can be retained over time. It is a convenient
way to store wealth.
1.3 Features of Good Money
The underlying consideration for both the issuer and user of money, either paper (notes) or
coins is convenience. As such, the following are the characteristics or qualities of good money:
General Acceptability
An important quality of money is its acceptance. Good money requires acceptance to all
without any hesitation. Since the law declares Money as the legal tender, it has an inherent
quality of general acceptability.
Portability
Apart from its acceptance, good money also requires portability. If people can carry or
transfer money from one place to another, then it is good money.
Durability
Acceptance and portability aside, the material used to make money must last for a long
time without losing its value. For example, ice and fruits are not good money since they lose
their value quickly with the passage of time. After all, ice melts and fruits perish. Therefore,
durability is an essential quality of good money.
Divisibility
Talking about the qualities of good money, it is important to remember the divisibility of
money. If someone wants to buy a smaller unit of a commodity, then divisibility of money can
make it possible. For example, cows cannot function as good money. This is because you
cannot divide a cow without making it lose its value.
Homogeneity
This connotes similarly to uniformity for the purpose of avoiding confusion in the use of
money. Look at two 100 pesos notes. They look and feel identical, right? They also have the
same value. In fact, nobody can distinguish between two currency notes right out of the
printing process.
This is an important quality of good money – homogeneity. If money is not

homogeneous, then transactions will become uncertain as people would be unsure of what
they are receiving.
Cognizability
The ability to recognize money is critically important. Today, we can look at a currency
note and tell its value. If money is not cognizable, then people can find it difficult to determine
if they are dealing with money or some inferior asset.
Stability
Of all the qualities of good money, stability is probably the most essential one. The value
of money cannot change for a long period of time and hence remain stable. If the value of
money keeps changing, then it will fail to function as a measure of value.
1.4 Forms of Money
We have already dealt with some of the forms of money that man has used over the years.
Even barter, which means exchanging things with things, can still identify that both those things
exchanged served as a medium of exchange for both parties engaged in it. Therefore, those things
exchanged in the barter can be considered as the earliest form of money and can still be called
commodity money because commodities were exchanged. This was followed by the development
of other forms of commodity money. We have discussed the use of shells, animal hides and cattle.
Different forms of medium of exchange have been used by society depending on their availability
and desirable characteristics. Therefore, we can cite the following as some of the major types of
money:
1. Commodity Money
When things are used to get what we want, be it goods or services, the things we used to pay for
such may be termed commodity money. Commodity money has its own value other than using it as
money.
2. Currency (Bills and Coins)
The government of any country issues currency that is legal tender in the country. These bills and
coins are in different denominations (the divisibility feature), minted and printed, by the central bank
of a country. Domestic currency can only be used in its country of origin. If it is used in another
country, it needs to be exchanged with the currency of that country.
3. Check
Check is generally used by businesses and persons in conducting business, as well as personal
transactions. It is written order to a bank (Drawee), by the person, who issues the check (maker or
drawer) to pay someone whose name is written on the face of the check (payee) a certain amount
of money on demand (upon presentation/immediately) or at a future date(post-dated check.
Example of a check is shown below.
Parties to a Check:
1. Maker
The maker is the drawer or writer of the check. He is the payer or debtor, the one who
owes someone or some company. He is the depositor with a current account with the bank
where the funds will come from.
2. Drawee
The drawee is the bank which is ordered to pay the payee. It is the bank where the
current account is maintained.
3. Payee
The payee is the one to whom the check is to be paid. He is the creditor. He endorses
or signs the back of the check. He either deposits it in his account with the drawee bank or in
another bank or goes to the drawee bank to encash the check. As such, the payee becomes
the primary endorser (first one to endorse the check). If he decides to use the check to pay his
account with somebody else, he first endorses the check at the back and gives it to whoever
he wishes to settle his account with. Therefore, the one to whom he gives it as payment
becomes the secondary endorser.
2 3 4 6
1
7
8
5
12
10
11 4 6 1
9
Parts of the Check:
Read the check carefully for the 12 points:
1. Account Number of the Maker

2. Account Name or the Maker
3. Payee or for whom the check is issued
4. Check Number
5. Drawee or the bank where the current account is maintained.
6. Bank Routing Symbol Transit Numbers. With this code, PayPal and other payment systems can
route funds to any registered bank in the Philippines.
7. Date
8. Amount in Figure
9. Amount in Words
10. Drawer’s (payer or issuer) signatures
11. Bank Name-Branch and Address
12. A waiver that states “I/We allow the electronic clearing of this check and hereby waive the
presentation for payment of this original to BDO Unibank, Inc.”
The different types of check are:
a. Personal Check
Personal check is issued by persons to be drawn against their own current/checking
account in a bank. A check is withdrawn from the checking account. Checking account is
generally non-interest bearing, while saving account is interest-bearing. However, there are
banks now that offer interest-bearing checking accounts known as Negotiable Order of
Withdrawal or NOW accounts.
b. Business Check
Business check is a check issued by companies/businesses. It is drawn on the issuer’s
bank checking or current account. It is used for business transactions.
c. Cashier’s Check/Manager’s check
Treated as a bank draft, cashier’s check is issued by the bank against its own account,
ensuring availability of funds. It is to be purchased with a fee from a bank that issues the
check. If you are to purchase a cashier’s check for, say, P1,000, you give the bank P1,000 plus
any fee the bank will charge. If the total fees and charges are, say, P100, you give the bank
P1,100 and the bank will issue you a cashier’s check for P1,000 that you will use to pay
somebody else, even a company. It can be signed by the bank cashier or any other bank
official.
d. Certified Check
Certified check is like a cashier’s check. However, it is issued by the bank certifying that
the account of the person issuing it has available funds (just like any ordinary personal check).
The bank certifies the availability of fund by earmarking the corresponding amount on the
check which will only be used to pay the check itself. Certified check clears or negotiates
faster and is easier to encash than personal checks.
e. Traveler’s Check
People who travel and who do not want to go into the hassle of exchanging their
currency with the currency of the country they are visiting bring with them what is known as
traveler’s check (also written as traveller’s check, traveler’s cheque, or travellers cheque). It is
a fixed amount check which is preprinted, allowing the signatory of the financial institution
who is selling the traveler’s check to make an unconditional payment to whoever has the
traveler’s check in his possession. It is like a check payable to cash o an on demand draft or
sight draft because it is payable on demand or upon presentation. The purchaser of the
traveler’s check should immediately endorse (sign) it for protection in case of loss.
American Heritage Dictionary defined traveler’s check as an internationally
redeemable draft purchased in various denominations (like currency bills) from a bank or
traveler’s aid company and payable only upon the purchaser’s endorsement against the
original signature on the draft.
American Express was the first company to develop a large-scale traveler’s check
system in 1891 and is still the largest issuer of the same by volume.
Parties to a traveler’s check are the following:
a. Issuer or Obligor – the company issuing or producing the traveler’s check. The obligor or issuer
is both the maker and the drawee because he makes final payment on the traveler’s check,
just as someone who issues his own check.
b. Agent – the financial institution who sells the traveler’s check.
c. Purchaser – the person buying the traveler’s check and will use it as a form of money.
d. Payee – the seller of goods or services to be paid with the traveler’s check.
4. Bank Draft
Bank draft is issued by banks against their own account. At times, they are called cashier’s
check or manager’s check. Like certified and cashier’s checks, bank drafts ensure availability of
funds without any need to check on the character of the person issuing the check. Like money, it
can be accepted irrespective of who is using the draft. It is sometimes called banker’s draft; it lists the
bank’s main office or branch as the issuer (guaranteeing availability of funds), and the person or
company that is receiving the money as the payee and signed by at least one manager. Some
banks require two signatures when they issue bank drafts. The name of the buyer of the draft is not
included in the draft. The use of bank drafts is prevalent in the UK, while cashier’s check is used more
in the US.
To get a bank draft, a customer goes to the bank to request it. The bank will ensure that the
customer has enough money in the bank (if he has an account with the bank where the funds will
come from) or presents enough cash to cover the amount of the draft plus all pertinent bank fees.
The bank then issues the draft.
Types of bank Draft
1. Demand Draft – this draft is payable on demand or upon sight, hence, is also called sight draft.
One presented to a bank for payment, the draft is considered paid.
2. Time Draft – this draft is payable sometime in the future like post-dated check.
3. Local Draft – this draft is issued by a bank in a single country. It is not accepted in any other
place but the country. It applies to local transactions.
4. International Draft – this draft I used globally or internationally. Companies which deal with
companies in foreign countries use this draft. Multinational companies usually deal with
international drafts. They are drawn on a bank in one country and used in another country.
5. Automatic Bank Draft (ABD) – this draft takes out money from the payer’s account
electronically at regular intervals. The payee requests the bank for payment directly. It is also
known as automatic payment or automatic bill pay or auto bill pay. It is ideal for paying
regular bills, like utility bills or credit card bills. Making automatic payment eliminates
forgetfulness on the part of the payer, thereby avoiding late fees. The customer agrees with te
terms of payments, which at time, include extra fees. He also authorizes the company to ask
the bank to deduct the amount from his account with the bank making the payment (bank
directly pays payee), usually a utility or credit card company.
5. Money Order
R. A. 7354, an Act Creating the Philippine postal Corporation under Art. II, Sec. 6, (d), sates that
the Philippine postal Corporation has the power to issue money orders or checks for transmittal
through the mails and authorize the issuance of a replacement in cases of lost, stolen, stale, or
destroyed money order or check. Money order refers to the instrument issued generally by the post
office of a country ordering a sum of money to be paid to the payee indicated on the instrument
itself.
1.5 Managed Currency
Presently, fiat money has gained different nomenclature, such as: credit money, fiduciary
money, inconvertible paper money, and non-commodity money. Nonetheless, as type of monetary
system, fiat money may be referred to as: Managed Paper Currency, Managed Paper Standard, or
Inconvertible Paper Standard.
The set of coins and bank notes used by a country form its
monetary system. The system is regulated by appropriate
legislation and organized from a monetary unit, its base value.
Currently almost all countries use a monetary system of

centesimal basis, in which the coinage dividing the unit represents one hundredth of its value.
Normally, higher values are expressed in notes while smaller values are represented by coins.
The current world trend is that daily expenses be paid with coins. Modern metallic alloys enable coins
to be more durable than notes, making them more appropriate to the intense use of money as
change.
The countries, through their central banks, control and guarantee the issue of money. The set
of notes and coins in circulation, the so called monetary mass, is constantly renewed through the
process of sanitation, substitution of worn out and torn notes.
Chapter Exercise
Name: _________________________________________________ Score: _______________

Year & Section: _______________________________________ Date: ________________
I. Identification (Part 1): Write your answer in the space provided right after the question.
1. Medium of exchange, standard of value and legal tender. ____________________

2. Converting metals into coins. __________________
3. Exchange of goods for other goods. ________________
4. Used for ATM transactions only. __________________
5. Substance used to manufacture plastic money. _____________________
6. Mostly used commodity as money. ___________________
7. Works like a credit card but all purchases are immediately charged to the account of the
cardholder. ____________________
8. Feels like a regular paper bill. __________________
9. The bank where the current account is maintained. _______________
10. Check issued by companies/businesses. ____________________
II. Identification (Part 2): Classify the following pictures as either Personal Check or Business Check and
write your answer in the space provided right after the picture.
SM Corporation
1._______________________
Henry Tan
2._______________________
University of Cebu
3._______________________
CHAPTER 2 – MONETARY STANDARD
Objectives
1. understand the nature of the monetary standard; and

2. differentiate the type of standard money used in an economy;
Introduction
A country’s monetary standard is adopted by authority of the state as measure of value. As

such, the monetary standard may be held synonymous with standard money or money of standard
value. Aptly described, the term ‘monetary standard” means a particular type or kind of standard
money used in the monetary system of a country and to which other kinds of money are related. The
underlying philosophy behind the adoption of a particular monetary standard stems from a desire to
provide a uniform basis for measuring the value of money in much the same way that the foot of the
kilo serves as a means of measuring length and weight, respectively.
2.1 Nature of the Monetary Standard
A country is said to establish a monetary standard or system when it sets down rules to govern the
creation of money and control the quantity in circulation whether the rules are strictly followed or
are to be accepted simply as guidelines for its own money managers. It will start out by deciding
what its monetary unit will be. Standard money is the monetary unit recognized by the government
as the ultimate basic standard of value upon which all other kinds of money are convertible.
Monetary Standard refers to the currency system adopted by a country to provide a stable
medium of exchange for domestic transactions and means of international payment for foreign
obligation. It is a standard that adopts a monetary unit to be basis of all kinds of money in
circulation. The Monetary Unit is the ultimate standard unit of value, upon which all kinds of money in
the Monetary System is based. Monetary unit also refers to standard money.
2.2 Classification of Monetary Standard
The monetary standards are generally divided into two broad types, namely:
1. Commodity Standard or Metallic Standard

2. Non-Commodity Standard or Fiat Standard
2.2.1 Commodity Standard or Metallic Standard
Is a monetary system in which the purchasing

power or value of the monetary unit is equal to the value
of a designated quantity of a particular commodity or set
of commodities. This is sometimes called the full-bodied
money because it is one hundred percent (100%)
backed-up by gold or silver reserves. Standard coins are
made out of metal.
Commodity standard may either be monometallic or bimetallic. A monometallic standard is

one-metal standard whereby a country uses either gold or silver as a standard unit of value. A
bimetallic on the other hand, is a two-metal standard whereby gold and silver are used as a
standard unit of value.
Monometallic Standard
Monetary unit is made up or convertible to only one metal. Only one metal is used as standard
money whose market value is fixed in terms of a given quantity and quality of the metal. The two
metals chiefly used as money are gold and silver. Monometallism continued almost without
interruption until in 1834.
Merits:
 Simplicity: Since only one metal is used as a standard of value, Monometallism is simple to
operate and easy to understand.
 Public Confidence: The standard money is made of a precious metal, it inspires public
confidence.
 Promotes Foreign Trade: It facilitates and promotes foreign trade. Gold or silver standard is easily
acceptable as an international means of payment.
 Avoids Gresham’s Law: It avoids the operation of Gresham’ Law which states that, when both
good and bad money exist in the economy, bad money tends to drive good money out of
circulation.
 Self – operative: It makes the supply of money self-operative. If there is surplus money supply, the
value of money will fall and the people will start converting coins into metal. This will wipe out the
surplus money, thus creating a balance.
Demerits:
 Costly Standard: It is a costly standard and all countries, particularly poor countries cannot afford
to adopt it.
 Lacks Elasticity: Money supply depends upon the metallic reserves. Thus, the money supply
cannot be changed in accordance with the requirements of the economy.
 Retards Economic Growth: Economic growth requires expansion of money supply to meet the
increasing needs of the economy. But, scarcity of metal may create scarcity of money supply
which, in turn, may hinder economic growth.
 Lacks Price Stability: Since the price of the metal cannot remain perfectly stable, the value of
money lacks stability.
SILVER Standard
The monetary unit is defined in terms of silver. The standard

coins are made of silver and are of a fixed weight and fitness in
terms of silver.
The silver standard remained in force in many countries for

a long period. India remained on silver standard from 1835 to
1893. During this period, Rupee was the standard coin and its
weight was fixed at 180 grains and fitness11/12.
The coinage of the Rupee was free and people can get
their silver converted into coins at the mint. Similarly, coins could
be melted into bullion.
Silver standard lacks universal recognition as compared to Gold standard. There is greater
instability of both internal and external values of money because silver price fluctuates more than
that of gold. Thus, as far as the metal is concerned, gold is preferred to silver in most of the countries.
GOLD Standard
Gold Standard is the most popular form of monometallic standard.
It refers to a monetary system in which the value of monetary unit or

standard currency of the country is directly formed or linked with gold.
The gold standard remained widely accepted in most of the countries of

the world during the last quarter of the 19th century and the first quarter of the 20th
century.
Gradually, gold standard disappeared from different countries and finally it was completely
abandoned by the world by 1936.
Features of gold standard:
• Definition of standard money in terms of gold.

• Gold coins are unlimited legal tender.
• No restriction on import-export of gold.
• Free and unlimited coinage of gold.
• Free and unlimited melting of gold.
• All other types of money (paper money) are freely convertible into gold or equivalent of gold.
Types of gold standard:
1. Gold Coin Standard
2. Gold Bullion Standard
3. Gold Exchange Standard
4. Gold Reserve Standard
5. Gold Parity Standard
1. Gold Coin Standard
A country is said to be in the gold coin standard when the government allows of gold bullions
into coins, which are freely obtained by the citizens of a country in exchange for other forms of
money.
The gold coin or currency standard or the gold specie standard is the oldest form of gold
standard. It is regarded as the traditional form of gold standard. This standard was prevalent in U.K,
France, Germany and U.S.A before the World War I.
It was a pure form of gold standard, as full-bodied standard coins made of gold were
circulated under this system. Token coins and other forms of money were to be redeemable into
gold.
Features of Gold Coin Standard:
• Monetary unit is defined in terms of gold.

• Coinage is unlimited and free of cost.
• Other forms of money are also in circulation and are convertible into gold.
• Free and unlimited melting of gold coins.
• Free import and export of gold.
• Gold is unlimited legal tender for all types of payments. All values are expressed in terms of
gold.
• Govt. buys and sells gold at fixed prices and thereby maintains parity between the face value
and intrinsic value of the standard coin.
Merits:
 Universally acceptable.
 Free and unrestricted import-export.
 Ensures stability in foreign exchange rates
 This promotes international trade.
 It is automatic working and needs no govt. intervention.
 This is the simplest form of gold standard which can be easily understood by the common people.
Demerits:
 It is fair-weather standard. It operates smoothly during peace time but fails to work properly and
to inspire public confidence at the time of economic crisis.
 There is a great problem of wastage of gold. Circulation of gold coins suffers depreciation.
2. Gold Bullion Standard
Is a system wherein the monetary unit or standard

money of the country is expressed in a definite weight
and fineness of gold in bar or bullion form.
It was adopted by Great Britain in 1925.
Gold Bullion standard is a modified version of gold coin standard in which there was no gold
coinage and currency is convertible into gold bullion. (Example: gold bars)
Features Gold Bullion Standard:
• Gold coins are not in circulation. The standard currency unit is expressed in terms of a definite
quantity of gold of a given fineness. Gold does not act as a medium of exchange, but it
remains a measure of value.
• Coinage of gold is not allowed, i.e. people cannot get their gold converted into coins at the
mint.
• Other forms of money are not fully backed by gold reserves. But the govt. guarantees full
convertibility of currency into gold bullion.
• The govt. is always ready to buy and sell gold at fixed prices.
• There are no restriction on import and export of gold.
• Since govt. is always ready to convert token and paper money into gold at fixed price, it
inspires public confidence.
Merits:
 The standard is easy to understand and economical in functioning.

 As the gold coins are not in circulation, there is no wastage of the precious metal. And there is no
100% backing of note issue.
 Since the currency is not fully convertible, the monetary authority can expand adequate money
supply by a small increase in gold reserves.
 Gold bullion standard operates automatically. If demand for money falls, people will start buying
gold from the govt. As a result, gold reserves, thus the money supply, will fall. In this way
equilibrium in the demand and supply of money will be established.
Demerits:
 This standard fails to work at the times of economic crisis.

 Without govt. intervention, this standard cannot function properly.
 Under this system, enough gold reserves are kept.
 Compared to gold coin standard, this standard inspires less public confidence because gold
coins are not in circulation.
3. Gold Exchange Standard
Is one in which the monetary unit of the

country is expressed in term of gold.
It refers to a system in which the domestic

currency of a country is not converted into gold for
meeting internal needs, but is converted into the
currency of some foreign countries. The external
value of the domestic currency unit is determined in
terms of the foreign currency.
The domestic currency has no direct link with gold. It is linked at a fixed exchange rate with the
currency of another country which is convertible into gold.
Features Gold Exchange Standard:
• The domestic currency is made of token coins and paper money.

• The domestic currency is not convertible into gold but is convertible at the fixed rate into the
currency of the other country based on the gold standard.
• There is no direct link between the volume of domestic currency and the gold reserves.
• Foreign exchange and foreign bills along with gold constitutes the reserve base of the country.
• Foreign payments are made either in gold or in currency based on gold.
• Gold is used neither as a medium of exchange nor as a measure of value. But prices of all
goods and services are indirectly determined by the price of gold.
Merits:
 As the domestic currency is not backed by gold reserves, the monetary authority can easily
expand money supply to meet the increasing needs of trade and industry.
 It avoids the wastage of gold because of non-circulation of gold coins.
 All the advantages of the gold standard become available under this standard without putting
gold coins in circulation.
 The govt. of the country earns interest on the reserves kept in the foreign country.
 This standard is particularly suited to the less developed countries with gold scarcity.
Demerits:
 Complex in its working and is not easily understandable by the common people.
 It does not inspire much public confidence. (since the domestic currency is not directly linked with
gold and the currency is not convertible into gold )
 This standard does not work automatically and needs active govt.
 It is called a managed standard.
 Money supply can be increased easily but it is very difficult to reduce money supply. Hence leads
to inflation.
 This system is not economical. To make it work, the govt. has to keep many reserves which involve
lot of expenditure.
 As the domestic currency of the country is linked with the foreign currency, the insecurity and
instability of the foreign currency makes the monetary system of the related country insecure and
unstable.
4. Gold Reserve Standard
Free flow of gold or foreign currency was allowed to stabilize exchange rates and promote
foreign trade without affecting the internal value of the domestic currency.
Features Gold Reserve Standard:
• No link with gold

• Restrictions on import-export of gold
• Establishment of exchange equalization fund by participating countries to maintain stability in
exchange rates.
• If the demand for a foreign currency rises, the fund will increase the supply of that foreign
currency in the open market and thus will prevent any rise in the value of that currency in
terms of other currencies.
• The composition and movement of reserves of the Exchange Equalization Fund are kept
strictly confidential from the public.
• Exchange rate stability is achieved without disturbing the internal economy of the member
country
5. Gold Parity Standard
The Gold Parity Standard is one of the forms of Gold Standard.
The Gold Parity Standard is the modern version of International Gold Standard. It is the
outcome of establishment of IMF in 1946.
Every member country of the International Monetary Fund declares the value of its money unit
in terms of a defined quantity of gold.
The standard aims at maintaining stable exchange rates without interfering into the domestic
monetary system of the member countries.
Features Gold Parity Standard:
• Stability of internal price level is not necessitated by this standard.

• It permits reasonable flexibility in exchange rates as alteration in par value, under the
regulation of IMF are allowed to the member countries.
Note:
PAR VALUE = The face value of a bond
IMF = International Monetary Fund
Bimetallism Standard
Bimetallism is a monetary system which attempts to base the

currency on two metals.
According to Chandler, “A bimetallic or double standard is one

in which the monetary unit and all types of nation’s money are kept at
constant value in terms of gold and also in terms of silver”.
Two metallic standards operate simultaneously. Two types of standard coins from two different
metals are minted. Both the types of standard coins become unlimited legal tender.
Features of Bimetallism:
• The standard is based on two metals; it is the simultaneous maintenance of both gold and
silver standards.
• There is free and unlimited coinage of both metals.
• The mint ratio of the values of gold and silver at the mint is fixed by the government.
• The face value and the intrinsic value of both the coins are equal.
• There is free import and export of both the metals.
• Both the coins are unlimited legal tenders. They are also convertible into each other.
Merits:
 Convenient full-bodied currency: It provides convenient full-bodied coins for both large and small
transactions. It provides portable gold money for large transactions and convenient silver money
for smaller payments.
 Price Stability: Under this system the shortage of one metal can be offset by increasing the output
of the other metal. Consequently, stability in the prices of both the metals and hence, in the
internal prices can be ensured.
 Exchange rate stability: As long as gold and silver are stabilized in terms of each other, the
currencies of all countries with fixed values in gold or in silver would exchange for each other at
nearly constant rates.
 Sufficient money supply: Sufficient money supply is assured to meet the trade requirements of the
economy. Since there is no question of both metals becoming scarce simultaneously, money
supply is more elastic under this system.
 Maintenance of bank reserves: Under this system, both gold and silver coins are standard coins
and unlimited tender. Therefore, it is easy for the banks to keep their cash reserves either in gold
coins or in silver coins or in both.
 Low interest rates: Under this standard, money is made of two metals; its supply is generally more
than its demand. As a result, the interest rates decline. Banks can extend loans at cheaper rates.
This would increase investment and hence production in the economy.
 Stimulates foreign trade: It stimulates international trade in two ways. (a) A country on bimetallism
can have trade relations with both gold standard and silver standard countries. (b) There are no
restrictions on import and export due to the free inflow of both types of coins.
Demerits:
 Operations of Gresham’s Law: which states that, when both good and bad money exist in the
economy, bad money tends to drive good money out of circulation.
 Inequality between mint and market rates: Bimetallism can operate successfully only if the
equality between the market rate and the mint rate can be maintained. But, in practice, it is
difficult to maintain equality between the two rates, particularly when one metal is oversupplied
than the other.
 Payment difficulties: Bimetallism leads to difficult situation in the settlement of transactions when
one party insists on payment in terms of particular type of coins.
 Costly monetary standard: Bimetallism is a costly monetary standard and all nations, particularly
the poor nations, cannot afford to adopt it.
2.2.2 Non-Commodity Standard or Fiat Standard
This standard refers to a monetary system in which the face value of the monetary unit is much
higher than that of the value of the material used as money. It is a monetary standard in which
inconvertible paper money circulates as unlimited legal tender.
The standard money is made of paper, both currency and coins serve as standard money for
purpose of payment. No gold reserves are required either to back domestic paper currency or to
facilitate foreign payments.
The standard is known as managed standard because the quantity of money in circulation is
controlled and managed by the monetary authority with a view to maintain stability in prices and
incomes within the country.
Objectives of the Managed Currency Standard
In the Philippines, the Managed Currency Standard shares the same objectives with the
Central Bank of the Philippines. Its first objective is to facilitate production; second, to make prices
stable; third, to make each and every Filipino maximize his income; fourth, to promote full
employment; fifth, to have an equitable distribution of wealth in the country; sixth, to preserve the
international value of the peso; and seventh, to make the country economically rich, and politically
and militarily strong and powerful.
The Central Bank has devised ways by which we could attain such objectives.
Merits:
 Cheaper than gold or silver standard.

 Highly useful in monetary system because it possesses great elasticity. The monetary authority can
easily adjust the money supply in accordance with the requirements of the economy.
 Ensures price stability in the country.
 Enables a country to meet national emergencies like war and other natural calamities in a better
and more effective manner than any other metallic standard.
Demerits:
 Danger of inflation is almost in-built in it (Hence it is easier to increase the supply of paper money
without keeping additional metallic reserves.)
 Instability in International Prices (Since the intrinsic value of paper currency is zero)
 Does not work automatically. To make it work, the government has to intervene from time to time.
Chapter Exercise
Name: _________________________________________________ Score: _______________

I. True or False: Write the word TRUE if the given statement is correct and FALSE, if otherwise.
_______1. Hoarding of gold was encouraged in the gold bullion standard.

_______2. The gold bullion standard economizes the use of gold.
_______3. The most economical form of gold standard is the gold exchange standard.
_______4. The Gresham’s Law states that the good money drives out the ad money from circulation.
_______5. Today, the Philippines is operating under the gold standard.
_______6. Under the gold standard, there is economy in the use of gold.
_______7. The gold bullion standard encourages the free movement of gold, wherein the government
does not intervene in its free importation and exportation.
_______8. One of the reasons why many countries adopted the gold exchange standard was because
a change from the silver standard to gold standard was expensive.
_______9. In the gold exchange standard, excessive importation may cause money supply to decrease.
_______10. Hoarding, importation and exportation of gold is allowed in the gold exchange standard.
II. Multiple Choice: Encircle the letter of the correct answer.
1. The unit of monetary value in the Philippines is:
a) Centavo c) Dollar
b) Peso d) None of the above
2. Which among these types of monetary standard is easily subject to currency management?
a) Gold standard c) Gold bullion standard

b) Gold exchange standard d) Bimetallic standard
3. Countries under the gold standard regulate their money supply in accordance with
a) Population c) Demand for money

b) Gold reserves d) Needs of the government
4. Currency management by the Central Bank is based on the
a) Needs of the economy c) Prestige of the country

b) Amount of gold reserves d) None of the above
5. Monetary unit refers to
a) Ultimate standard unit of value

b) Standard money upon which all kinds of money can be converted
c) None of the above
d) A & B
CHAPTER 3 – MONETARY SYSTEM
Objectives
1. understand the concept of monetary system; and

2. differentiate the types of money used in the country from the pre-Spanish period up to the
present;
Introduction
Philippine money–multi-colored threads 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 of the world.
3.1 The concept of Monetary System
In any country, the monetary system consists of the aggregate of money in use and the values
of the various types of money being organically related to one another in both formal and
substantive ways. In a system, there is standard money and unit of account and every type of money
is either a multiple or sub-multiple of that unit, that is, there are various denominations.
The monetary system of a country is a national affair. The central government usually acquires
a monopoly or near control of monetary affairs, minimizing state and local differences and
facilitating production and trade on a national basis. Each country enacts its own coinage, banking,
and other monetary legislation. The monetary system in a country is determined by law. Laws are
passed from time to time, adding new types of money or modifying existing types of money to meet
special emergencies of a financial or political character.
In the case of the Philippines, the monetary system is the managed currency system, and the
monetary unit is the Peso and represented by a sign ₱.
3.2 Pre-Spanish Period
Long before the Spaniards came to the Philippines

in 1521, the Filipinos had established trade relations with
neighboring lands like China, Java, Borneo, Thailand and
other settlements. Barter was a system of trading
commonly practiced throughout the world and adopted
by the Philippines. 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.
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.
Barter rings made from pure gold, were handfashioned by early Filipinos during the 11th and
the 14th centuries. These were used in trading with the Chinese and other neighboring countries
together with the metal gongs and other ornaments made of gold, silver and copper.
3.3 Spanish Period (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.
Due to the shortage of fractional coins, the barrillas, were struck in the Philippines by order of
the Spanish government. These were the first crude copper or bronze coins locally produced in the
Philippines. The Filipino term “barya,” referring to small change, had its origin in barrilla.
In the early part of the 19th century, most of the Spanish colonies in Central and South America
revolted and declared independence from Spain. They issued silver coins bearing revolutionary
slogans and symbols which reached the Philippines. The Spanish government officials in the islands
were fearful that the seditious markings would incite Filipinos to rebellion. Thus they removed the
inscriptions by counter stamping the coins with the word F7 or YII. Silver coins 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 Español Filipino de Isabel II, were the first paper money circulated in the Philippines.
3.4 Revolutionary Period (1898-1899)
General Emilio Aguinaldo, the first Philippine

president, was vested with the authority to produce
currencies under the Malolos Constitution of 1898. At
the Malolos arsenal, two types of two-centavo
copper coins were struck. Revolutionary
banknotes were printed in denominations of 1,5 and 10
Pesos. 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.
3.5 American Period (1900-1941)
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 monetary system for the
Philippines was 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.
3.6 Japanese Period (1942-1945)
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 big denominations. Provinces and
municipalities, on the other hand, issued their own
guerrilla notes or resistance currencies, most of which
were sanctioned by the Philippine government in-
exile, and partially redeemed after the war.
3.7 Philippine Managed Currency System (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 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 paper money 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 coins initially
issued in 1983. These series featured national heroes and species of flora and fauna. 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.
As the repository and custodian of country's numismatic heritage, the Museo ng Bangko
Sentral ng Pilipinas collects, studies and preserves coins, paper notes, medals, artifacts and
monetary items found in the Philippines during the different historical periods. It features a visual
narration of the development of the Philippine economy parallel to the evolution of its
currency.
3.8 Current Banknotes and Coins in Circulation

Pursuant to the New Central Bank Act, the BSP has the sole power and authority to issue currency,
within the territory of the Philippines. Notes and coins issued by the BSP are liabilities of the BSP and
may be issued only against, and in amounts not exceeding, its assets. All notes and coins issued by
the BSP are fully guaranteed and are legal tender in the Philippines for all debts, both public and
private.
The following are the current banknotes and coins in circulation issued by BSP:
 BSP Coin Series (1995 - Present)

 New Generation Currency Banknotes Series (2010 - Present)
 New Generation Currency Coin Series (2018 - Present)
3.9 Demonetization
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 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.
The Bangko Sentral may call in for replacement of notes of any series or denomination which are
more than five (5) years old and coins which are more than ten (10) years old. Notes and coins called
in for replacement in accordance with this provision shall remain legal tender for a period of one
year from the date of call. After this period, they shall cease to be legal tender but during the
following year, or for such longer period as the Monetary Board may determine, they may be
exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the
Bangko Sentral for this purpose. After the expiration of this latter period, the notes and coins which
have not been exchanged shall cease to be a liability of the Bangko Sentral and shall be
demonetized. The Bangko Sentral shall also demonetize all notes and coins which have been called
in and replaced.
3.10 Regulations on Currency
Chapter Exercise
Name: _________________________________________________ Score: _______________

I. Matching: Match column A with column B and write the letter of the correct answer.
A B
1 American Period A. the first currencies issued by the Central Bank of the Philippines.
2 Flora and Fauna B. the period with the introduction of one peso notes.
3 Cowries C. the new name for Central Bank of the Philippines in year 1993.
4 English Series D. the first local form of coinage.
5 Barillas E. the first coins brought to the country from Mexico.
6 Japanese Period F. the period in which war notes was issued in big denominations.
7 Piloncitos G. the most common and acceptable form of money through
8 Bangko Sentral ng Pilipinas many centuries.
9 Barya H. the first copper coins minted in the Philippines.
10 Cobs or Macuquinas I. the first issued coins issued by the Central bank of the Philippines.
J. the Filipino term that refer to small change and had its origin in barilla.
II. Multiple Choice: Encircle the letter of the correct answer.
1. The retirement age for notes.
a) 10 years c) 3 years
b) 5 years d) 8 years
2. The act of stripping a currency unit of its status as legal tender. It occurs whenever there is a
change of national currency.
a) Devaluation c) Demonetization
b) Appreciation d) Recognition
3. The retirement age for coins.
a) 3 years c) 8 years
b) 5 years d) 10 years
4. The current banknotes in circulation.
a) Ang Bagong Lipunan(ABL) Series c) Filipino Series

b) New Generation Currency (NGC) Series d) New Design Series (NDS)
5. The central monetary authority of the Philippines.
a) National Treasury c.) Central Bank of the Philippines

b) Bangko Sentral ng Pilipinas d.) Department of Finance

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SAINT JOSEPH COLLEGE, MAASIN, LEYTE

Maasin City, Southern Leyte

BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION

Mr. Nilo L. Bia, Jr., MBA

Each student shall be assessed on the following:

Pre-Midterm/Pre-Final Examination ------------------------------------ 20%

At the end of the semester, the students must be able to:

1. Elaborate the concept and development of money;

A. Money and its Evolution.

At the end of the lesson, you should be able to:

1. Discuss the origin and concept of money;

1.1 The Concept and Development of Money

Origin of the Word “Money”

Money is anything authorized by law to be generally accepted as legal tender. It is used as a

Origin and the Different Stages of Evolution of Money

Money, as we know it today, is the result of a long process.

First Stage – Commodity Money

Salt was another commodity money, difficult to obtain, mainly

Second Stage – Metallic Money

As soon as man discovered metal, it was used to made utensils

For its advantages, as the possibility of treasuring, divisibility, easy

Money in the Form of Objects

Metal items came to be very valued commodities.

As its production required, in addition to knowledge of melting,

Coins reflect the mentality of a people and their time.

Gold, Silver and Copper

Minting of gold and silver coins was common for many

Third Stage – Paper Money

The Chinese invented printing and use of paper money

In the Middle Ages, the keeping of values with

Coins had already very small sizes, as the stater, which

Plastic (Polymer) Money

Polymer is more durable, harder to counterfeit, and environment-friendly. It is less polluting,

How Credit Money Works

According to recent research done in economic history, anthropology, and sociology,

Credit Money and Fractional Reserve Banking

Fifth Stage – Plastic or Electronic Money

Samples of a Credit Card

Samples of a Debit Card

Sample of a Cash Card

Prepaid Cash Card

Sample of a Gift Certificate

Samples of a Store Card

3. Multi-currency Prepaid Card

Three functions of money are:

1.3 Features of Good Money

This is an important quality of good money – homogeneity. If money is not

1.4 Forms of Money

2. Currency (Bills and Coins)

Read the check carefully for the 12 points:

1. Account Number of the Maker

The different types of check are:

Parties to a traveler’s check are the following:

Types of bank Draft

Currently almost all countries use a monetary system of

Name: _________________________________________________ Score: _______________

1. Medium of exchange, standard of value and legal tender. ____________________

At the end of the lesson, you should be able to:

1. understand the nature of the monetary standard; and

A country’s monetary standard is adopted by authority of the state as measure of value. As

2.1 Nature of the Monetary Standard

2.2 Classification of Monetary Standard

1. Commodity Standard or Metallic Standard

Name: ___________________________________ Score: _

Name: ___________________________________ Score: _

Name: ___________________________________ Score: _