1. MONETARY POLICY The concept of Monetary Policy Monetary Policy consists of the actions and decisions made by the government to create appropriate monetary conditions.

2. It is usually based on the countrys fiscal policy. In the Philippines, the monetary policy is implemented by the Monetary Board through the Central Bank of the Philippines

3. Objectives of Monetary Policy More stable price level Opportunity for full employment Low and stable rate of inflation

4. Orderly foreign exchange market Stable foreign exchange market Adequate level of foreign exchange reserves.

5. Tools of Monetary Policy The central bank or the monetary authorities of a country have three(3) instruments or tools by which they can influence the money supply.

6. First Tool: Open Market Operation In this tool, the central bank may buy or sell government bonds or securities or instruments in the open market.

7. Second Tool: Changing the Reserve Ratio Banks are required by the government to have reserves, which means that they should set aside a certain percentage of the amount of deposits they have.

8. This percentage is called reserve ratio. Third Tool: The Discount Rate Commercial banks also borrow money, but not only from the central bank.

9. Situation A: Recession Buy Securities RECESSION Reduce Reserve Ratio Lower Discount Rate

10. During a recession, the central bank may buy securities to increase the reserves, reduce the reserve ratio to further increase their reserves,

11. and lower the discount rate to encourage commercial banks to borrow from the central bank to add to their reserves.

12. Situation B: Inflation Sell Securities INFLATION Increase Reserve Ratio Raise Discount Rate

13. During inflation, the central bank may sell securities to reduce the reserves of commercial banks, increase the reserve ratio to further decrease theirs reserves,

14. and raise the discount rate so that commercial banks will not be encouraged to borrow from the central bank.

15. Philippines Monetary Policy As mandated by R.A. 7653, the main objective of this is to promote a low and stable inflation and price stability to a balanced and sustainable growth of the economy.

16. The Inflation Target The inflation target set by the BSP is based on the average year-on-year change in the consumer price index (CPI) over the calendar year.

17. The Monetary And Financial Sectors The Bangko Sentral ng Pilipinas is only the central financial authority in the country.

18. However, it is not the only financial institution that offers monetary and financial services. There are also institutions called banks, which are also a main component of the countrys monetary sector.

19. The Philippines Banking System Universal and Commercial banks -These have the largest resources and offer the widest services.

20. Thrift Banks - consist of savings and mortgage banks, private development banks, stock savings and loan associations and microfinance thrift banks.

21. Rural and Cooperative Banks - these are very popular in the provinces and in rural areas.

22. Microfinance Banks -are the latest in the banking system and focus on providing loans and financial services for the microenterprises of low-income individuals and families

23. Aside from those, there are also other financial institutions that provide financing. First is Cooperatives, which are organized by the people themselves who become partowners or shareholders.

24. Pawnshops also provide small loans to people on the basis of a physical collateral or guarantee, such as jewelry or household appliances.

25. Learning About Money money makes the world go round

26. What is money? In economics, money may be defined as follows: Money is any common medium of exchange acceptable in payment for goods/services/for the settlement of debts.

27. Money is what we use to buy things with. Money is anything generally acceptable as a medium of exchange.

28. Although money may not be used in all economic activities, it is money which makes economic transactions easier.

29. Functions of Money Medium of Exchange -this is the foremost function of money. -it serves as a convenient tool for the exchange of goods.

30. Measure of Value -people use money as a standard in measuring the value or worth of goods and services.

31. Store of Value -money is a good way to store wealth because it is very liquid, meaning the moment you have it you can immediately spend it.

32. Features of Money General Acceptability - individuals and businesses accept money as part of long business practice, and generally trust its value, anywhere.

33. Legal Tender - money is declared as a legal tender by government, which means that its acceptability and legality are derived from the law.

34. Divisibility - money, even when divided into denominators, has the quality of divisibility.

35. Recognizable - part of the acceptability of money is its being recognizable by all sectors of the economy.

36. Money in the Philippines The basic unit of monetary value in the Philippines is the peso, represented by the letter P traversed by an equal sign.

37. The Bangko Sentral ng Pilipinas As part of the countrys monetary policy, the money supply is controlled and managed by the central bank.

38. Highlights of Central Banking History 1990 The First Philippine Commission placed all banks under the Bureau of Treasury. 1929 The Bureau of Banking under the Department of Finance

39. 1939 Under the Commonwealth government 1946 a joint PhilippineAmerican Finance Commission 1947 Central Bank council was formed.

40. 1948 a bill establishing the Central Bank of the Philippines was submitted to Congress by Pres. Roxas. 1949 The Central Bank of the Philippines was formally inaugurated.

41. 1972 Presidential Decree No. 72 was issued. 1981 Presidential Decree No. 1771 was issued 1986 composition of the Monetary Board was amended.

42. 1993 The Bangko Sentral ng Pilipinas was formally established.

43. Vision and Mission of the BSP VISION The BSP, imbued with the values of integrity, excellence and patriotism, aims to be a world-class monetary authority

44. And a catalyst for a globally competitive economy and financial system that delivers a high quality of life for all Filipinos.

45. MISSION BSP is committed to promote and maintain price stability and provide proactive leadership in bringing about a strong financial system conductive to a balanced and sustainable growth of the economy.

46. Towards this end, it shall conduct sound monetary policy and effective supervision over financial institutions under its jurisdiction.

47. Overview of BSP Functions and Operations Liquidity Management Currency Issue Lender of Last Resort Financial Supervision Management of Foreign Currency Reserves

48. Determination of Exchange Rate Policy Other Activities

49. The Monetary Board Chairman: Amando M. Tetangco, Jr. Members: Cesar V. Purisima Alfredo C. Antonio Ignacio R. Bunye Peter B. Favila Felipe M. Medalla Armando L. Suratos

50. Major Functions: 1. Issue rules and regulations. 2. Direct management, operations, and administration of BSP 3. Establish a human resources management system

51. 4. Adopt an annual budget and authorize such expenditures by BSP 5. Indemnify its members and other officials of BSP

52. The Governor The governor is the chief executive officer of BSP and is required to direct and supervise the operations and internal administration of BSP.

53. Governor's duties and responsibilities: 1. Prepares the agenda 2. Executes and administers policies and measures 3. Appoints and fixes the remunerations and other emoluments

54. 4. Renders opinion, decisions, or rulings 5. Exercises such other powers 6. Represents the Monetary Board and BSP 7. Signs contracts

55. Advocacies of the BSP The BSP has advocated projects on poverty alleviation, anti-money laundering, and public financial literacy.

56. International Financial Bodies And Foreign Aid Efforts to better economies of nations are also made by international financial bodies, which put a great deal into helping, particularly on the development side through foreign aid.

57. Some of these international financial bodies are the following: World Bank- an international institution that provides financial aid and technical assistance to developing countries all over the world.

58. International Monetary Fund -this is actually a specialized agency of the UN, the objective of which is to promote international monetary cooperation and the growth of world trade, and coordinate multilateral payment among member states.

59. Foreign Loan Providers - these are countries which provide development loans or credits to less developed countries or LCDs.

60. Among the criticisms of foreign aid are the following: 1. 2. 3. 4. Too much dependency Too much intrusion Too much bureaucracy Too much corruption