MONETAY POLICY AND CENTRAL BANKING
LESSON 5
Monetary stability:
Currency Management GROUP 7
@Rlikes
TOPICS TO BE
DISCUSSED
Monetary stability: Currency
Management
Importance of currency management in
maintain in monetary stability
Significance of issuance, distribution
and retirement of currency as
components of currency management.
Monetary stability:
Currency Management
Monetary policy is enacted by a central bank to sustain a level
economy and keep unemployment low, protect the value of the currency,
and maintain economic growth. By manipulating interest rates or
reserve requirements, or through open market operations, a central bank
affects borrowing, spending, and savings rates.
A managed currency is one whose value and exchange rate are
influenced by some intervention from a central bank. This may mean
that the central bank increases, decreases, or maintains a steady value,
sometimes linked to another currency.
How Currency
Management Works:
Central banks manage a nation's currency through the use of monetary policies, which range
widely depending on their country. These economic policies usually fall into four general
categories as follows:
Issuing currency and setting interest rates on loans and bonds to control growth,
employment, consumer spending, and inflation,
Regulating member banks through capital or reserve requirements and providing loans
and services for a nation’s banks and its government,
Serving as an emergency lender to distressed commercial banks and sometimes even
the government by purchasing government debt obligations,
Buying and selling securities in the open market, including other currencies.
Currency management is a critical
component of monetary stability.
Currency management can help
control inflation, promote economic
growth, and ensure financial
stability. In this article, we will look at
the significance of currency
management and how it can help to
maintain overall monetary stability.
Importance of currency management
in maintain in monetary stability
Stable Financial System.
It helps make the financial system more stable and foster economic
growth.
It decreases the volatility of inflation
It lowers uncertainty and market interest rates.
It prevents inflation's negative redistributive impacts.
Income and wealth will be redistributed as a result of unexpected
inflation.
It reduces sudden changes in inflation.
Sudden changes in inflation can result in distortions. For instance, if
inflation rises more quickly than expected. Governments are permitted
to issue more money if they are having financial difficulties.
Importance of currency management in
maintain in monetary stability
Facilitates international trade
Currency management is important for international trade as it helps in
stabilizing exchange rates, reducing exchange rate risk, and promoting
trade and investment.
Maintains confidence in the economy
When the currency is stable and predictable, businesses and investors
are more likely to invest and take risks, leading to economic growth and
stability.
Supports fiscal policy
When the currency is stable, the government can plan its spending and
revenue collection more effectively, leading to better fiscal outcomes.
Reduces financial crises
By managing the currency, authorities can limit the risk of financial
instability, which can lead to economic instability and crises
Issuance, Distribution and
Retirement of currency as
components of currency
management
The Philippine cash cycle involves issuance of
new coins and notes, distribution to the regions of
the country, and retirement of unfit currency. The
BSP adopts a Clean Note and Coin Policy for the
effective removal of unfit currency in circulation as a
means to maintain the integrity of Philippine
banknotes and coins.
Significance of Issuance of Currency
·Issuing cash to inject liquidity into the economy
Central banks need to issue money to ensure that there is an adequate flow of
coins and notes that allows the economy to function properly. In general, properly
issuing money is linked to economic expansion. As a reminder, the functions of
money include acting as a tradable currency for purchasing goods and services,
determining the price of those goods and services in commercial transactions
(unit of account), and acting as a store of value.
·The BSP is the sole government institution mandated by the law to issue notes and
coins for circulation in the Philippines. Section 50 of republic Act (R.A) No. 7653,
otherwise known as The New Central Bank Act, as amended by Republic Act No.
11211, stipulates that the BSP shall have the sole power and authority to issue
currency within the territory of the Philippine. It also issue legal tender commemorative
notes and coins.
Production
Philippine coins and banknotes are mostly produced in the
BSP Security Plant Complex (SPC). Over the past four
decades the SPC has become a world class producer of
quality coins and notes. It has overseen the design
production and issuance of four generations of legal tender
Philippine Currency
Currency: Pesos
Currently, coins of 1, 5, 10, and 25 cents and 1, 5, 10, and 20 pesos are in use.
Banknotes of denominations of 20, 50, 100, 200, 500, and 1,000 pesos are
also in circulation
BSP: cash in piggy banks create artificial shortage
Significance of
Distribution of Currency
·The document defined the CSA as “a currency circulation mechanism
that aims to enable all [banks] to enter into a mutually beneficial
agreement to service requirements for fit Philippine currency of other
banks from their available currency holdings”.
·Distribution of notes and coins throughout the country is done through
designated bank branches called chest.
The CSA allows the BSP to co-ordinate cash movements among the country’s
commercial banks, without the need to supply them from its own stores. Through
partnership with the country’s banks, the central bank can orchestrate the movement
of cash between commercial institutions while improving its picture of overall
currency needs.
Significance of Retirement
of Currency
The Bangko Sentral ng Pilipinas has the exclusive power and authority to issue
coins and notes for circulation in the Philippines. The BSP has recently launched
enhanced Philippine coins and notes that are more responsive to the needs of the
elderly and the visually impaired, and feature the latest anti-counterfeiting
technology. It also issues legal tender commemorative coins and notes of limited
quantity to celebrate or recognize the significance of a person, place and event in
Philippine history.
·The bangko sentral may call in for replacement notes of any series or
denomination which are more than five years old and coins which are more
than ten years old.
Checking Bank notes
Demonetization of the
old banknote series
It is the process by which a central bank removes the monetary value of a
legal tender currency it issue
The process of demonetization is widely practiced throughout the world
though reason for demonetizing can be varied. Among the common
reasons are the following:
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
References:
https://www.ecb.europa.eu/press/key/date/2003/html/sp030329.en.html
https://www.investopedia.com/terms/m/managed-currency.asp
https://www.investopedia.com/terms/m/managed-
currency.asp#:~:text=Central%20banks%20manage%20currency%20by,rises%20or%20falls%20too
%20rapidly. https://www.investopedia.com/articles/investing/092413/how-currency-
works.asp#:~:text=It%20helps%20encourage%20economic%20activity,therefore%20address%20lon
g%2Dterm%20needs. https://www.investopedia.com/trading/floating-rate-vs-fixed-rate/
https://www.ecb.europa.eu/mopo/intro/benefits/html/index.en.html#:~:text=It%20decreases%20the%
20volatility%20of,maintain%20social%20cohesion%20and%20stability.
• https://www.ecb.europa.eu/press/key/date/2003/html/sp030329.en.html •
https://www.investopedia.com/terms/m/managed-currency.asp •
https://www.imf.org/external/pubs/ft/ar/2016/eng/index.htm
https://www.bsp.gov.ph/SitePages/CoinsAndNotes/CoinsAndNotes.aspx
https://www.santander.com/en/stories/issuing-money
https://www.centralbanking.com/awards/7938321/currency-initiative-central-bank-of-the-
philippines-cash-service-alliance
https://www.youtube.com/watch?v=kZ9VyeaU_SQ
THANK YOU!
