MONETARY POLICY

MONEY:
Money can be defined as an object that is readily accepted from anybody as full payment
for purchase of a certain commodity or for service rendered by an individual.
This may take the form of metal coins, paper money issued by the government, banks or
personal checks.
FUNCTIONS:
Medium of Exchange
Standard Value
Store of Value
MONEY STANDARDS:
It refers to the type of standard money used in an economy.
It refers to the overall set of laws and practices which control the quality and quantity of
money in a country. The standard money of a country which determines and regulates the
exchange value of goods and services.
CENTRAL BANK:
It is the entity responsible for overseeing the monetary system for a nation.
It also implements specific goals, issues currency, low inflation and full employment.
FUNCTIONS OF CENTRAL BANK:
Bank of issue
Banker, agent and adviser of the government
Custodian of cash reserves of banks
Custodian of the nations reserves of international currency
Bank of rediscount and lender of last resort
Bank of central clearance and settlement
Controls credit
BANGKO SENTRAL NG PILIPINAS (BSP)
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the
Philippines.
It was established by Congress pursuant to R.A. 7653 or the BSP Chapter.
BSP: ROLES AND RESPONSIBILITIES:
Maintaining price stability
Supervision of all other banks
Issuance of Philippines bank notes and coins
Managing the countries international reserves
Determining the countrys exchange rate policy
Banker of banks
Banker, financial advisor, and official depository of the Philippine Government
THREE PILARS OF BSP:
Price Stability- entails keeping inflation low and stable to promote economic
efficiency
Financial Institutions Stability- seeks to maintain the health of the banking system
so that it can effectively intermediate between providers and users of funds
Payments and settlements system efficiency

MONETARY POLICY:
a process whereby the monetary authority attempts to achieve a desired goal
controlling either the money supply, the cost and availability of credit or the allocation of
credit
MONETARY POLICY: OBJECTIVES
The primary objective of the monetary policy is to provide financial stability that
promotes growth and development of the economy with minimal inflation.
The success indicator of monetary policy is the rate of inflation in lower result.
MONETARY POLICY: LIMITATIONS
Monetary policies are not effective during depression.
It involves a delay in analyzing the monetary and financial problems, the
formation of appropriate policies, their implementation, and finally the impact of
such policies.
Most less developed countries have unorganized and fragmented money markets
and credit institutions that makes it difficult for central banks to control money
supply and interest rates in response to the particular needs of their economies.
Regarding policies on economic stability and economic growth, the ability of the
central bank of a poor country to achieve such goals is uncertain.
TYPES OF MONITARY POLICY:
1. Expansionary Monetary Policy- monetary policy setting that intends to
increase the level of liquidity/money supply in the economy and which
could also result in a relatively higher inflation path for the economy.
2. Contractionary Monetary Policy- monetary policy setting that intends to
decrease the level of liquidity/money supply in the economy and which
could also result in a relatively lower inflation path for the economy
BSP MONETARY POLICY TOOLS
1. OPEN MARKET OPERATIONS
Transactions involve the sale or purchase of securities by the BSP to
withdraw liquidity from or inject liquidity into the system.
A. Repurchase (RP) and Reverse Repurchase (RRP)
Transactions are carried out through the repurchase (RP) facility
and the reverse repurchase (RRP) facility of the BSP.
Involves:
1. Repurchase or repo transaction
2. Reverse repo
3. RP and RRP transactions
B. Outright Transactions
Direct purchase/sale by the BSP of its holdings of government
securities from/to banking institutions.
C. Foreign Exchange Swaps
Transactions involving the actual exchange of two currencies
(principal amount only) on a specific date at a rate agreed on the deal date (the
first leg), and a reverse exchange of the same two currencies at a date further
in the future (the second leg) at a rate (different from the rate applied to the
first leg) agreed on deal date

2. ACCEPTANCE OF FIXED-TERM DEPOSIT

Transactions involve the sale or purchase of securities by the BSP to withdraw
liquidity from or inject liquidity into the system
3. STANDING FACILITIES
The BSP extends discounts, loans and advances to banking institutions in
order to influence the volume of credit in the financial system.
Types of Rediscounting
peso rediscounting facility and the Exporters Dollar
Yen Rediscount Facility (EDYRF)
4. RESERVE REQUIREMENTS
Percentage of bank deposits and deposit substitute liabilities that banks must
keep on hand or in deposits with the BSP and therefore may not lend
Apply to peso demand, savings, time deposit and deposit substitutes
(including long-term non-negotiable tax-exempt certificates of time deposit or
LTNCTDs) of universal banks (UBs) and commercial banks (KBs) and may be kept
in the form of cash in vault, deposits with the BSP and government securities
Two Forms of Reserve Requirement
regular or statutory reserves
liquidity reserves

DENNIANNE B. CERENO
SUNNY I. HO
BSA IV