MONETARY POLICY

What is money? GOLD-BACKED PAPER- starting over 1,000

years ago, humans have used pieces of
Money is a commodity accepted by paper as a replacement for metal money.
general consent as a medium of economic The earliest evidence of this dates back to
exchange. It is the medium in which prices the Tang Dynasty in China. These notes
and values are expressed. It circulates from were backed by metals like gold and silver
person to person and country to country, and could be exchanged at the Chinese
facilitating trade and it is the principal capital.
measure of wealth.
 In the US the dollar was backed up
HISTORY OF MONEY by gold from 1879 to 1933 when
FDR took us off of the gold standard
onto a fiat system of money. Paper
money has some advantages over
gold coinage - namely its portability.
Paper is obviously much lighter
than lugging around pounds and
pounds of metal coins. Although,
paper money is far less durable than
a piece of gold but if destroyed, the
paper money is easily created.
Because of this, paper is also much
easier for governments to
MONEY THROUGHOUT HISTORY
manipulate the supply of when
BARTER- the action or system of compared to gold - hence, fiat.
exchanging goods or services without using
money.  The first paper money issued by the
government were "demand notes"
CATTLE AND GRAIN- Around 10,000 years commonly referred to as
ago on the invention of agriculture where "greenbacks." In 1862, Congress
they use plants and animals as a form of retired the demand notes and began
money - namely cattle and grain. issuing United States notes, also
called legal tender notes.
SEASHELLS- Around 3,000 years ago where
they used cowrie shells. A greenback is a slang term for U.S. paper
dollars. The term originated during the mid-
METALS- metal tools such as knives and
1860s, when these notes were printed in
spades were also used as money.
green ink. Congress had limited taxing
METAL COINS and earlier forms of money authority, and used paper currency to help
have one key difference government. The finance the civil war.
earliest evidence of metal coinage dates
Fiat Paper- The term ‘fiat’ refers to money
back 2,500 years ago to the Kingdom of
that is not backed by gold or any other
Lydia (modern day Turkey). These coins
commodity. Fiat money is only backed by
were made of gold and silver and featured a
the force of the government behind it. The
stamp of a lion head.
earliest form of fiat money date back to
China under the Yuan Dynasty. When the remain the same after it has been divided
Mongolians occupied northern China ~700 into different denominations.
years ago and established the Yuan Dynasty,
they adopted the paper money system from 4. Uniform - Uniformity in currency means
the Song dynasty, but they didn’t bother to that each individual unit holds the same
back it up with metal or other commodities. value.

Credit Cards and Digital Money 5. Limited supply- A limited supply of

money is good for the economy because it
The earliest form of credit card was keeps the money from inflating and so that
made in 1914 by Western Union called the currency does not lose its value. If the
“Metal Money”. This was the first time in money supply grows at a faster rate than
history a regular consumer could defer the economy's ability to produce goods and
payment of something relatively easily. services, then inflation will result.
Credit cards really took off by the 1950’s
with the Diners Club Card, American 3. Widely accepted- Good money requires
Express, and VISA all being created. By acceptance to all without any hesitation.
1966 BankAmericard created the first Since the law declares money as the legal
general purpose credit card. tender, it has an inherent quality of general
acceptability. Money needs to be easily
Bitcoin is the first form of money that has a recognized.
truly limited supply. There can only ever be
21 million Bitcoin and that will never FUNCTIONS OF MONEY
change. Bitcoin is arguably the best store of Store of value is an asset, currency, or
value ever. Because of it’s limited supply, it commodity that maintains its value over a
is inherently deflationary. This means that if long period.
you own Bitcoin and hold it for 5 years, it’s
essentially guaranteed to increase in value. Unit of Account A unit of account is
something that can be used to value goods
FEATURES OF MONEY and services, record debts, and make
1. Durable - Durability is a necessary calculations.
property of money because the money must Medium of exchange. Money is widely
be able to sustain its value over time. accepted as a method of payment.
2. Portable - Portability is the ability of a Why Money Skills Are Important
good to be transported easily across space.
Portability is an important feature of sound ▪ Create Independence
money; in order for a money to be widely
adopted, and therefore usable, it must be ▪ Set and reach goals
able to move across borders, between ▪ Enjoy living responsibly within your means
individuals, and over long distances with
relative ease. ▪ Prepare you for your future after college

3. Divisible - Because economic Developing A Financial Plan

transactions frequently occur in varying
amounts, a currency must be divisible to be ▪ Look at your resources
used broadly in an economy. The ▪ Understand your expenses
cumulative value of the currency must also
▪ Set financial goals ▪ If you get a lump sum grant or loan for
the semester, write the semester’s worth
▪ Identify and evaluate what to do of rent checks
▪ Take action ▪ Use meal cards to plan your food costs
▪ Review your progress ▪ Save each day’s loose change to make a
▪ Make changes if needed weekend fun fund

▪ Get help if it’s not working ▪ Use phone cards to measure/manage

phone expenses
Key Areas To Know
FUNCTIONS OF MONEY
▪ Budgeting Your Money
Money has taken many forms through the
▪ Online Banking ages: shells, wheels, beads and even cows.
All forms, though, have always had three
▪ Checking Account things in common.
▪ Savings Account Three functions of money:
▪ Understanding Credit •First: Money is a store of value. Holding
money is a more effective way of storing
▪ Debit Cards
value than holding other items of value such
Where Does Your Money Go? as corn, which might rot. Although it is an
efficient store of value, money is not a
▪ Track expenses for one month perfect store of value. Inflation slowly
erodes the purchasing power of money over
▪ What did you buy
time.
▪ Which were needs vs. wants
•Second: Money is a unit of account. You
▪ Patterns of spending can think of money as a yardstick-the device
we use to measure value in economic
▪ Categorize spending (clothing, food, etc.) transactions. If you are shopping for a new
▪ Identify future spending (car, etc.) computer, the price could be quoted in
terms of t-shirts, bicycles, or corn.
Why Budget?
•Third: Money is a medium of exchange.
▪ Helps you to live within your financial
This means that money is widely accepted
means and meet expenses
as a method of payment. When I go to the
▪ Helps you track spending versus saving to grocery store, I am confident that the
accomplish long- and short-term goals ▪ cashier will accept my payment of money.
Offers peace of mind. Worry is a waste of
resources

Ideas to Use

▪ Pay yourself a weekly amount for

spending money
WHAT IS THE PHILIPPINE PESO (PHP)? released in March 2018 and will be formally
The Philippine Peso refers to the launched in July. It consists of six coins: the
Philippines’s official currency and is 1-sentimo, 5-sentimo, 25-sentimo (cents),
represented by ISO code PHP. The Bangko and the 1-piso, 5-piso, and 10-piso coins.
Sentral ng Pilipinas (BSP), the Philippines’ The previous series, released in 1995 and of
central bank, mints and prints the legal tender until otherwise announced by
banknotes and the coins at its complex in the central bank, had the same
Quezon City. denominations plus a 10-sentimo coin,
discontinued in the new series.
In 2009, the BSP announced a complete
redesign of the current notes and coins to
boost security features and increase
longevity. Popular Filipinos and iconic KINDS OF MONEY
natural wonders grace the latest banknote Commodity Money
designs. In December 2010, the BSP began
issuing the first batch of new notes. This is money that is an actual
commodity that has value outside of being a
In February 2016, the country’s central medium of exchange. Commodity money
bank began to distribute new 100-peso can be precious metals, gemstones, spices,
bills, which came with a better purple or and even coffee. Commodity money is the
purple hue. It was suggested by the public simplest and, most likely, the oldest type of
to differentiate between the 100-peso currency.
banknote and the 1000-peso banknote. The
100 PHP bills of the New Generation  Cowrie shells
Currency are still in circulation; hence, they  Sharks teeth
can still be used by the public.  Peals and gems stones
 Cigarettes
NOTES:
Fiat money is entirely backed by
Today there are six Filipino
government orders rather than a physical
banknotes in circulation: the 20, 50, 100,
good. It gets its status as a medium of
200 (being the least common), 500, and
exchange because the government declared
1,000 peso bills. All don vibrant hues and
it an official means of payment.
the images of significant people and events
in Philippine history, as well as those of the Fiduciary Money This is money that is
country’s endemic fauna, sights, and natural based on trust rather than the intrinsic
wonders. The bills are made of 80% cotton value of the money itself with no
and 20% abaca, and possess a slightly rough government backing. This form of payment
texture. While they don’t vary in size, they relies on the trust or promise that it will be
distinctly differ in their striking colors of accepted as a form of payment.
orange, red, purple, green, yellow, and light
blue, respectively.

COINS:

Currently, coins from the previous

BSP Coin Series and the recently released
New Generation Currency Coin Series co-
exist. The complete set of newer coins were
  Examples of fiduciary currency adornment, jewelry, and the first
include cheques, banknotes, or local form of coinage called
drafts. Note that cryptocurrencies Piloncitos. These had a flat base
like Bitcoin or Ethereum can also be that bore an embossed inscription
considered fiduciary (in most of the letters “MA” or “M” similar to
countries), although proponents the Javanese script of the 11th
suggest they constitute an entirely century. It is believed that this
new type of money. inscription was the name by which
the Philippines was known to
Commercial Bank Money This is money in Chinese traders during the pre-
the economy in the form of debt created by Spanish time.
commercial banks. Banks loan out money
based on the fiat money their customers SPANISH ERA (1521-1897)
deposited to other customers to earn  The cobs or macuquinas of
interest. 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
Origin and Evolution of Money Spanish royal coat-of-arms on the
other.
Barter
 The Spanish dos mundos were
Money, as we know it today, is the result of circulated extensively not only in
a long process. At the beginning, there was the Philippines but the world over
no money. People engaged in barter, the from 1732-1772. Treasured for its
exchange of merchandise for merchandise, beauty of design, the coin features
without value equivalence. twin crowned globes representing
Spanish rule over the Old and the
PRE-HISPANIC ERA New World, hence the name “two
worlds.” It is also known as the
 Long before the Spaniards came to
Mexican Pillar Dollar or the
the Philippines, trade among the
Columnarias due to the two
early Filipinos and with traders
columns flanking the globes.
from the neighboring lands like
China, Java, Borneo, and Thailand  Due to the shortage of fractional
was conducted through barter. coins, the barrillas, were struck in
the Philippines as ordered by the
 The inconvenience of the barter
Royalty of Spain. The barrilla, a
system led to the adoption of a
crude bronze or copper coin worth
specific medium of exchange – the
about one centavo, was the first coin
cowry shells. Cowries produced in
struck in the country. The Filipino
gold, jade, quartz and wood became
term “barya”, referring to small
the most common and acceptable
change, had its origin in barrilla.
form of money through many
centuries. REVOLUTIONARY PERIOD (1898-1899)
 Since the Philippines is naturally
rich in gold, it was used in ancient  Asserting its independence, the
times for barter rings, personal Philippine Republic of 1898 under
 General Emilio Aguinaldo issued denominations, were issued by different
its own coins and paper currency provinces and, in some instances,
backed by the country’s natural municipalities through their local currency
resources. At the Malolos arsenal, boards to show resistance against the
two types of two-centavo copper Japanese occupation.
coins were struck. One peso and five
peso revolutionary notes printed as THE PHILIPPINE REPUBLIC
Republika Filipina Papel Moneda Having gained independence from
de Un Peso and Cinco Pesos were the United States following the end of
freely circulated. These were World War II, the country used as currency
handsigned by Pedro Paterno, old treasury certificates overprinted with
Mariano Limjap and Telesforo the word “Victory”.
Chuidian. With the surrender of
General Aguinaldo to the Americans, In 1949, the first currencies issued
the currencies were withdrawn were the English series notes printed by the
from circulation and declared illegal Thomas de la Rue & Co., Ltd. in England and
currency. the coins minted at the US Bureau of Mint.

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.

THE JAPANESE OCCUPATION

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 high denominations.
These war notes had no back up reserves,
thus, Filipinos dubbed it “Mickey Mouse”
money. During the worst inflation in
Philippine history, Filipinos would go to the
market laden with bayongs of Mickey
Mouse bills, since one duck egg cost 75
pesos, and a box of matches more than 100
pesos.

On the other hand, Guerrilla Notes

or Resistance Currencies which are in low