Monetary Policy

• Money


  Anything which is generally acceptable by the people in exchange of goods and services or in repayment of debts
• Money


  A unit of account, a means of payment and a store of value
• Money


  The means of valuation and of payment; as both the unit of account and the generally acceptable medium of exchange
• Money


  Anything which the state declares as money is money
• Evolution of Money


  1. Barter system

  2. Commodity system

  3. Paper system

  4. Demand deposit/bank money

  5. E-money
• Barter system


  • Direct exchange of goods and services for other goods
  • Lack of double co-incidence of wants
  • Lack of common measure of values
  • Difficulties in storing values
  • Deferred of payments/absence of loaning
  • Indivisibility of certain goods
• Commodity money


  Commodity that has intrinsic value and is used as a medium of exchange
• Examples of commodity money

  • Salt
  • Animal
  • Gems
  • Beads
  • Gold
  • Silver
• Types of paper money

  • Representative money
  • Convertible money
  • Inconvertible money/fiat money
• Representative money


  Money which is fully backed by equal metallic reserve. The holder can easily get it converted into metallic form on demand.
• Convertible money


  Money which can be converted into gold, silver i.e. metallic reserves. But not all notes are fully backed by gold.
• Inconvertible money/fiat money


  Money that has a face value more than the value of the paper. Its value is because it has been declared as legal money by the government.
• Demand deposit


  A type of account held at banks and financial institutions that may be withdrawn at any time by the customer
• Forms of demand deposit

  • Cheques
  • Bills of exchange
  • Drafts
• 1. money


  All types of money which people deal with electronically, far from traditional ways of payments like banks, checks, paper money and coins
• Functions of money


  • Medium of exchange
  • Unit of account or measure of value
  • Store of value
  • Standard of deferred payments
  • Transfer of value
• Money as a medium of exchange

  Removes the need for double coincidence of wants and the inconveniences and difficulties associated with barter. Facilitates exchange and helps production indirectly through specialization and division of labor.
• Money as a unit of account or measure of value

  Provides a common unit to measure the values of different goods and services. Enables the pricing process which is the basis of organized marketing and production.
• Money as a store of value


  Wealth can be stored in terms of money for future. Serves as a store value of goods in liquid form.
• Money as the standard of deferred payments


  Facilitates borrowing and lending operations because money generally maintains a constant value through time. Connects the values of today with those of the future.
• Money as a transfer of value


  Keeps on transferring values from person to person and place to place. A person who holds money can transfer that to any places.
• Money as the Standard of Deferred Payments

  Deferred payments are payments which are made some time in the future. The use of money as the standard of deterred or delayed payments immensely simplifies borrowing and lending operations because money generally maintains a constant value through time. Thus, money facilitates the formation of capital markets and the work of financial intermediaries like Stock Exchange, Investment Trust and Banks. Money is the link which connects the values of today with those of the future.
• Money as a Transfer of Value

  Since money is a generally acceptable means of payment and acts as a store of value, it keeps on transferring values from person to person and place to place. A person who holds money in cash or assets can transfer that to any places.
• General Acceptability


  • It is the very essence of money. Unless a person knows that the money which he accepts in exchange for his goods or services will be taken without any objection by others as well, he will not accept it. It will cease to be current. In order to possess general acceptability, a commodity should have some intrinsic utility independent of its value for monetary purpose. Gold and silver are generally acceptable to all without any hesitation because they are used for ornamental and other purposes and can be easily sold as bullion, besides being used for monetary purposes.
• Portability


  • A commodity fit to be used as money must be such that it can be easily and economically transported from one place to the other. In other words, it must possess high value in small bulk. Precious metals possess this quality. In the case of oxen and grain, a small value occupies a large bulk and weight; hence, they are unsuited as money commodity.
• Indestructibility or Durability


  • As money is passed from hand to hand and is kept in reserve, it must not easily deteriorate, either in itself or as a result of wear and tear. "It must not evaporate like alcohol, nor purely like animal substance, nor decay like wood, nor rust like iron. Destructible articles, such as eggs, dried cod fish, cattle or oil has certainly been used as currency; but what is treated as money one day must not soon afterwards be eaten up." Gold coins are very lasting; they take about 8,000 years to wear out completely. Silver coins are not equally lasting but wear out fairly slowly. As such gold and silver are considered to be excellent money commodities.
• Homogeneity


  • All portions or specimens of the substance used as money should be homogeneous, that is, of the same quality, so that equal weights have exactly the same value. In order that a commodity may be used as a measure of value, it is essential that its units are similar in all respects. Gold and silver are of the same quality throughout; their various parts are similar in chemical and physical composition and their consistency is the same throughout the mass.
• Divisibility


  • The money material should be capable of division; and the aggregate value of the mass after division should be almost exactly the same as before. If we use diamond as money and by chanceit drops from our hand and breaks, we will suffer an enormous loss. This is not the case with precious metals. Their portions can be melted and remelted together any number of times without much loss.
• Malleability


  • The money material should be capable of being melted, beaten and given convenient shapes. It should be neither too hard nor too soft. If the former, it cannot be easily coined; If the latter, it would not last long. It should also possess the attribute of impressionability so that it may easily receive the impressions.
• Cognizability


  • By it, we mean the capability of a substance for being easily recognised and distinguished from all other substances. As a medium of exchange, money has to be continually handed about; and it will cause great inconvenience if every person receiving it has to scrutinise, weigh and test it. It should have certain distinct marks which nobody can mistake. Gold and silver are at once recognised by their distinctive colour, metallic and heavy weight for small bulk, and, as such, satisfy this condition admirably
• Stability of Value


  • Money should not be subject to fluctuations in value. Fluctuating standard of value is just like a changing yard or kilogram. The value of a material, which is used to measure the value of all the other materials, must be stable. The ideal money commodity should, as such, possess utility, portability, durability, homogeneity, divisibility, malleability, Cognoscibility and stability of value.
• Kinds of Money


  • Metallic Money
  • Paper Money
  • Legal Tender
• Full Bodied Coins


  When the face value of the coin is equal to the value of metal contained in the coin, the coin is called a full bodied coin. The gold and silver coins of old times are examples of full bodied coins.
• Token Money


  When the face value of a coin is greater than the value of the metal it contains, it is called token money. In our country, all the coins are token money.
• Limited Legal Tender Money


  The money which can be used a means of payment up to a certain limit is called limited tender money.
• Un-limited Legal Tender Money


  The money that can be used a means of payment up to any limit or amount.
• Non legal tender money

  Non legal tender money implies optional money which a person may or may not accept as a means of payment. Bank money in the form of cheques, bills of exchange, promissory notes is not legal tender money therefore they represent Non legal tender money
• Desired Learning Outcomes


  • Explain the Laws governing the Philippine Banking System
  • Understand the Salient Features of the New Central Bank Act
  • Understand Monetary Policy and Its Objectives
  • Understand Fiscal Policy
  • Coordinate Fiscal and Monetary Policy

  
• RA. 7653


  The New Central Bank Act (June 14, 1993)
• RA 11211


  An Act amending RA No. 7653, otherwise known as "The New Central Bank Act" and for Other Purposes (February 14, 2019)