The significance of money. the monetary policy as an economic policy

1. Economic Policies
in the Philippines

2. Economic Policy is
• the actions that governments take in the economic field.
• It covers the systems for setting levels of taxation, government budgets, the
money supply and interest rates as well as the labor market, national
ownership, and many other areas of government interventions into the
economy

4. Objectives
The BSP’s primary objective is to maintain price stability conducive to a
balanced and sustainable economic growth. The BSP also aims to promote
and preserve monetary stability and the convertibility of the national
currency

5. Responsibilities
• The BSP provides policy directions in the areas of money, banking and
credit. It supervises operations of banks and exercises regulatory powers
over non-bank financial institutions with quasi-banking functions.

6. Under the New Central Bank Act, the BSP
performs the following functions, all of which
relate to its status as the Republic’s central monetary
authority.

7. Liquidity Management. The BSP formulates and implements monetary policy aimed at influencing
money supply consistent with its primary objective to maintain price stability.
Currency issue. The BSP has the exclusive power to issue the national currency. All notes and coins issued
by the BSP are fully guaranteed by the Government and are considered legal tender for all private and public
debts.
Lender of last resort. The BSP extends discounts, loans and advances to banking institutions for liquidity
purposes.
Financial Supervision. The BSP supervises banks and exercises regulatory powers over non-bank
institutions performing quasi-banking functions.

8. Management of foreign currency reserves. The BSP seeks to maintain sufficient international reserves
to meet any foreseeable net demands for foreign currencies in order to preserve the international stability and
convertibility of the Philippine peso.
Determination of exchange rate policy. The BSP determines the exchange rate policy of the Philippines.
Currently, the BSP adheres to a market-oriented foreign exchange rate policy such that the role of Bangko
Sentral is principally to ensure orderly conditions in the market.
Other activities. The BSP functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and government-owned and -controlled
corporations.

9. TERMS

10. DEFINE THE FOLLOWING

11. INTEREST
money paid regularly at a particular rate for the use of money lent, or for
delaying the repayment of a debt

12. INTEREST RATE
the proportion of a loan that is charged as interest to the borrower, typically
expressed as an annual percentage of the loan outstanding

13. DISCOUNT RATE
a rate used for discounting bills of exchange

14. REDISCOUNT RATE
• the discount rate charged by Federal Reserve banks for rediscounting
commercial paper for member banks or making secured advances to them
on their own notes.

15. INVESTMENTS
• the action or process of investing money for profit or material result

16. DEMAND DEPOSIT
• a deposit of money that can be withdrawn without prior notice.

17. LETTER OF CREDIT
• a letter issued by a bank to another bank (typically in a different country) to
serve as a guarantee for payments made to a specified person under specified
conditions

18. IMPORT
• bring (goods or services) into a country from abroad for sale

19. EXPORT
• send (goods or services) to another country for sale.

20. BALANCE OF PAYMENTS
• the difference in total value between payments into and out of a country
over a period

21. TIGHT MONEY
• money or financing that is available only at high rates of interest

22. EASY MONEY
• money obtained by dubious means or for little work.
• money available at relatively low interest

23. The Significance of
Money

24. What is Money?

25. Hyman
Money is “ anything that is generally accepted as
payment for goods or services”

26. Cargill
Money is “ anything that is used as payment, for a
good, a service or a debt obligation”.

27. Kidwell and Peterson
Money is “a generally acceptable medium of
exchange”.

28. Functions
of Money

29. As unit of
account
As
medium of
exchange
As a store
of wealth

30. The Evolution of
Money

31. Payment system
The method of conducting
transactions in the economy.

32. Objects used as
Money

33. Dentalia, used as
the payment
system of the
American Indians
for 2,500 years

34. Wool Blankets
Used by the
Northwest Indian
Territory as a
medium of
exchange

35. Knives, Rice and
Spades
Used in China
around 3000B.C

36. Cattle and Clay
Tablets
Used in
Babylonia around
2,500 B.C

37. Wampum and
Beaver Fur
Used by the
American Indians
of the Northeast
In A.D 1500

38. Tobacco
Used by the
early American
colonist in
around 1650’s

39. Whales’ Teeth
Used by the
Pacific people on
the Island of Fiji

40. Disadvantages of
Using Objects as
Money

41. Objects
are
perishable
Objects
are
indivisible.
Objects
are not
easily
portable.

42. The Use of
Precious Metals

43. Silver and Gold
Used at around
2000BC

44. As late as 1933,
Gold coins were
still used in the
United States

45. Lydian coins are
made of
electrum.
Used at around
7th century BC

46. Etruscann coin
Used at around
553 BC

47. Philippines used
gold coins as a
medium of
exchange until
14th century.

48. Disadvantage of using
Precious Metals

49. Their monetary or exchange value
IntrinsicValue

50. Fiat Money
Refers to paper currency decreed by the government
as legal tender but not convertible to coins or other
precious metals.

52. Credit Money
Money that is backed by a promise to pay.
Its worth as a commodity is negligible
resulting to its very little intrinsic value.

53. Electronic Form of Money:
A new form of Money

56. Measures of
Money

57. People who are much concerned with maintaining
the stable value of their money holdings will
interested to know the how the money system
works. One of the first concerns will be to
familiar with the concepts like the measure of
money.

58. M0: Monetary Base, the actual federal reserve
notes (dollar bills) and coins in circulation.
MB: M0 + coins and notes in bank vaults and
money deposited at the Federal Reserve (this is
the most important measure).
M1: M0 + travelers checks, demand
account balances.
M2: M1 + savings account balances,
CD’s and money market accounts.
M3: M2 + large deposit accounts and
other special Federal Reserve quantities.

59. The Demand for
Money

60. Money has become an
important commodity at
home and in the offices.

61. Transaction Demand for Money
The amount of money needed to cover the needs of an individual, firm, or
nation.
That is, transaction demand for money is a measure of how much of a
certain currency people need in order to buy the goods and services they use.

62. Generally speaking, if an economy is healthy,
there is a high transaction demand for money
because people are buying more goods and services.
Conversely, if an economy is in trouble, people
buy fewer goods and services.

63. Unless there is a significant, sudden change in the
transaction demand, central banks have little trouble
adjusting the money supply to accommodate the
changes that do occur.

64. Transaction Cost
The total cost of a security transaction after commissions,
taxes, and other expenses.

65. Factors Affecting
Demand of Money

66. The nominal interest rates in the economy;
The degree to which payments and receipts can be synchronized in the economy;
Expectations about future levels of interest rates;
Stock and bond prices;
Inflation;
The level of nominal GNP

68. The demand curve for money illustrates
the quantity of money demanded at a given
interest rate.
Notice that the demand curve for money is
downward sloping, which means that people
want to hold less of their wealth in the form
of money the higher that interest rates on
bonds and other alternative investments are.

69. Monetary Policy

70. Monetary Policy is
the process by which the monetary authority of a country controls the supply of money, often
targeting an inflation rate or interest rate to ensure price stability and general trust in the
currency.
provides insight into how to craft optimal monetary policy.

71. Monetary Policy refers to actions that the Bangko
Sentral takes in order to change the equilibrium of
the money market. This is to alter the money
supply , move interest rates, or both.

72. The Goals of the
Monetary Policy

73. High Employment
Economic growth
Stable prices
Interest rate stability
Stability of financial markets
Stability in foreign exchange markets

74. Objectives of the Monetary
Policy

75. To maintain internal and external monetary stability in the
Philippines and to preserve the international value of the peso
and its convertibility to other freely convertible currencies
To foster monetary, credit and exchange conditions conducive
to a balanced and sustainable growth of the economy.

76. Tools of Monetary
Policy

77. Required Reserves
the proportion of banks’ deposits and deposit substitute
liabilities that banks are required to hold as reserves.

78. Rediscounting
a special refinancing facility of central banks wherein a financial
institution borrows money from the BSP using promissory notes
and other loan papers of its borrowers as collateral.

79. Open Market Operations (OMO)
the sale or purchase of government securities by the BSP
to withdraw liquidity from or inject liquidity into the system.

80. Selective Credit Control
A tool that lets BSP selects what kind of credit
it will give to its clients.

81. Moral Suasion
the influence which the central bank exercises to induce or
convince banks to conduct operations in a manner that would
contribute to the attainment of monetary goals but not
necessarily support the profit-maximizing objectives of the
banks.

82. Discount Policy
policy taken by the central bank to increase and decrease the
money circulation by raising or lowering bank rates. If the
Central Bank raised bank rates, its aim to reduce the amount of
money. With the high rates, people are expected to save their
money in bank