Nature of

Monetary
Economics
CHAPTER 2

Norie L. Maniego
Definition
Is the economics of the money supply, prices and interest rates, and their
repercussions on the economy.
It focuses on the monetary and other financial markets, the determination
of the interest rate, the extent to which these influence the behavior of the
economic units and the implications of that influence in the macroeconomic
context.
Functions of Money
 Medium of exchange
 Unit of account
 Store of value
 Standard for deferred payments
Prices and the Value of Money

Changes in the price level are caused by two factors:

(a) changes in the supply of money, and
(b) changes in the supply of goods and services.
 
History of Philippine Money
 Pre-Hispanic Era - Trade among the early Filipinos and with traders
from the neighboring islands was conducted through barter. The
inconvenience of barter later led to the use of some objects as medium of
exchange. Gold, which was plentiful in many parts of the islands,
invariably found its way into these objects that included the piloncitos,
small bead-like gold bits (Source:bsp.gov.ph)
 History of Philippine Money
 Spanish Era (1521-1897)
At the end of the Spanish regime, Philippine money was a multiplicity of currencies that
included Mexican pesos, Alfonsino pesos and copper coins of other currencies.
The macuquinas of colonial mints were the earliest coins brought in by the galleons from
Mexico and other Spanish colonies. The silver dos mundos or pillar dollar is considered one of
the world’s most beautiful coins. The barilla, a crude bronze or copper coin worth about one
centavo, was the first coin struck in the country.
Coins from other Spanish colonies also reached the Philippines and were counter stamped.
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. (Source:bsp.gov.ph)

 
History of Philippine Money
 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.
 One peso and five peso notes printed as Republika Filipina Papel Moneda de Un Peso and
Cinco Pesos were freely circulated. 2 centimos de peso copper were also issued in 1899.
(Source:bsp.gov.ph)
History of Philippine Money
 The American Period (1900-1941)
 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. (Source:bsp.gov.ph)
History of Philippine Money
 The Japanese Occupation (1942-1945)
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. (Source:bsp.gov.ph)
History of Philippine Money
 The Philippine Republic
1. English Series (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.
Denominations: 1, 2, 5, 10, 20, 50, 100, 200 and 500 pesos; all bearing portraits of
Filipino heroes.

(Source:bsp.gov.ph)
History of Philippine Money
2. Pilipino Series (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.

Denominations 1, 5, 10, 20, 50 and 100.

Together with the English Series, this Pilipino Series was considered demonetized after February 28,
1974 pursuant to PD 378.

(Source:bsp.gov.ph)
History of Philippine Money
3. Ang Bagong Lipunan Series (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.
The ABL banknote series was considered demonetized after February 2, 1996.

(Source:bsp.gov.ph)
 History of Philippine Money
4. New Design Series (NDS) (1985-2017)

When Martial Law was lifted in 1981, the Central Bank started to print and mint an entirely new series of Philippine currency
notes and coins which are contemporary and forward looking, adopting the latest 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.

 The following month, the 10-piso banknote with the face of Apolinario Mabini was issued.

After the 1986 People Power Revolution and the new 1987 Constitution was promulgated, the 500-piso banknote with the face
of Benigno Aquino, Jr. was introduced.
In 1991, the BSP issued for the first time a 1000-piso banknote, containing the portraits of Jose Abad Santos, Josefa Llanes
Escoda and Vicente Lim.

(Source:bsp.gov.ph)
History of Philippine Money
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.
Pursuant to BSP Circular No. 954, Series of 2017, the NDS banknotes were demonetized after 30
June 2017

(Source:bsp.gov.ph)
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:

(Source:bsp.gov.ph)
Why demonetized?
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

(Source:bsp.gov.ph)
 BSP……..
To safeguard the integrity of Philippine currency.

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”
(Source:bsp.gov.ph)