Ina Mae B.

Factor

BSED 3-C

Our discussion last October 29, 2021 was about money’s role in economic policy. Sir Henry
also discussed about inflation which is a monetary phenomenon. I learned that inflation’s impact in the
economy is not always bad and it is just a natural phenomenon as long as it is just about 4%. To keep
inflation within permissible limits and for the economy to run smoothly, a country has a monetary
authority. Here in the Philippines, we have BSP to formulate and implement policy in the areas of
money, banking and credit with the primary objective of preserving price stability. Price stability refers
to a condition of low and stable inflation. By keeping price stable, the BSP helps ensure strong and
sustainable economic growth and better living standards.

Hearing and learning about some monetary policies are my “AHA MOMENTS” in this lesson. I
am not really familiar with any of these policies and I was able to know the tools used by BSP to control
money supply. We were able to know about expansionary and contractionary policies. These policies
both regulate the money supply of a country. Sir Henry compared these policies to a faucet. If the BSP
wants to inject more money then, it will use the expansionary monetary policy. Then, if the BSP wants to
reduce the level of money supply then it will use the total opposite of expansionary policy, the
contractionary policy.

Another “AHA MOMENT” for me is knowing about reserve requirement, discount window
and open market operations. Reserve requirements are a tool used by the central bank to increase or
decrease the money supply in the economy and influence interest rates. Reserve requirements are the
amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden
withdrawals. So, if the BSP will lower the reserve requirement it is executing expansionary monetary
policy. The BSP required to keep less cash on hand and are able to increase the number of loans to give
consumers and businesses. This increases the money supply, economic growth and the rate of inflation.
On the other hand, the greater the reserve requirement, the less money that a bank can potentially lend
and now the BSP is executing contractionary monetary policy. I also learned about discount window
which means BSP lending short term loans to other banks. Banks borrow at the discount window when
they are experiencing short-term liquidity shortfalls and need a quick cash infusion. Banks generally
prefer to borrow from other banks, since the rate is cheaper and the loans do not require collateral.
Lastly, Open market operations (OMO) refers to a central bank buying or selling short-term Treasuries
and other securities in the open market in order to influence the money supply. Example given to us by
Sir Henry was when your relative abroad gave you a dollar and you will going to money exchange so that
you can now use the money to buy things.

Honestly, I thought that handling money is just so easy. But as I’ve learned about these policies, I can
now conclude that there is really a need for our government to assign an appropriate monetary
authority to manage the money supply and to achieve price stability and manage inflations so that our
economy will run smoothly.