Big Picture A

Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to:
a. Demonstrate understanding of the concept of Philippine money, its
importance, functions, characteristics, kinds and classifications as well as the
monetary system of the Philippines.
b. Demonstrate deep knowledge of the learning from the relevance of money in
the economy and to the country as a whole including our daily transactions in
businesses and at home.

Big Picture in Focus: ULOa. Explain the concept of money, its

functions, characteristics and classifications.

Metalanguage
In this section, the most essential terms relevant to the study of monetary policy
and central banking and to demonstrate ULOa operationally defined below to establish
a common frame of reference as to how the texts work in your chosen field or career.
You will encounter these terms as we go through the study of the course. Specific
discussion per topic shall be provided in the later part to help you understand more
about the scope in studying this course.

1. Monetary Policy - this refers to the actions undertaken and given action by a
country’s central bank to control the money supply in the economy and be able
to achieve the country’s sustainable economic growth.
2. Central Bank - is a financial institution established by the government that is
given the whole privilege to gain control over the production and distribution of
money and credit in a specific country and group of nations. This institution is
the one responsible for the formulation of monetary policy and the regulation
of all banks.
3. Money - any object that is generally accepted that is basically used as a
payment for the purchase of goods and use of services. Further, this is also
used as a repayment of debts of a country or any context relatively socio-
economic functions.

Essential Knowledge
The following are basic concept of monetary policy and central banking that may
be useful for you to understand this field of expertise. The said concepts might be
confusing or difficult as a beginner but at the later part of this unit, these terminologies
would be of great help for you to understand the nature of its existence. Please note that
you are not limited to exclusively refer to these resources. Thus, you are expected to
utilize other books, research articles and other resources that are available in the
university’s library e.g. ebrary, search.proquest.com etc. and even online tutorial
websites.

Part I. Philippine Money

1. Functions of Money
1.1 Medium of Exchange – Money facilitates buying and selling. It is used to
pay for or settle obligations. Since it is an acceptable payment for goods and services,
it serves as a physical means for conducting business transactions. The use of money
makes purchases and sales possible. In addition, money reduces the time spent on a
transaction.
 1.2 Standard of Value – this is also known as Unit of Account in which money
serves as a yardstick of measurement of prices and values when comparing items. In
principle, any commodity can serve as a unit of account.
1.3 Store of Value – this is considered as a reservoir of future purchasing power.
Money can both be temporary and a permanent store of purchasing power.
1.4 Standard of Deferred Payment – Money is used as a medium of fulfilling
obligations of debtors to creditors on maturity. It serves to measure the extent of
obligations by debtors and claims by creditors. In short, this means that the promises to
pay at are expressed in money value.

2. Characteristics of Good Money

2.1 General Acceptability - Good money requires acceptance to all without any
hesitation. Since the law declares Money as the legal tender, it has an inherent quality
of general acceptability.
2.2 Durability - As money is passed from hand to hand and is kept in reserve, it
must not easily deteriorate, either in itself or as a result of wear and tear. Acceptance
and portability aside, the material used to make money must last for a long time without
losing its value.
2.3 Portability - A commodity fit to be used as money must be such that it can
be easily and economically transported from one place to the other. In other words, it
must possess high value in small bulk.
2.4 Divisibility - The money material should be capable of division; and the
aggregate value of the mass after division should be almost exactly the same as before.
2.5 Stability of Money Value - Money should not be subject to fluctuations in
value. Fluctuating standard of value is just like a changing yard or kilogram. The value
of a material, which is used to measure the value of all the other materials, must be
stable. Of all the qualities of good money, stability is probably the most essential one.
The value of money cannot change for a long period of time and hence remain stable.
If the value of money keeps changing, then it will fail to function as a measure of value
and as a standard of deferred payment.
2.6 Cognizability - Today, we can look at a currency note and tell its value. If
money is not cognizable, then people can find it difficult to determine if they are dealing
with money or some inferior asset. By it, we mean the capability of a substance for being
easily recognized and distinguished from all other substances. As a medium of
exchange, money has to be continually handed about; and it will cause great
inconvenience if every person receiving it has to scrutinize, weigh and test it.
2.7 Homogeneity or Uniformity - All portions or specimens of the substance
used as money should be homogeneous, that is, of the same quality, so that equal
weights have exactly the same value. In order that a commodity may be used as a
measure of value, it is essential that its units are similar in all respects. If money is not
homogeneous, then transactions will become uncertain as people would be unsure of
what they are receiving.
2.8 Malleability - The money material should be capable of being melted, beaten
and given convenient shapes. It should be neither too hard nor too soft. If the former, it
cannot be easily coined; If the latter, it would not last long. It should also possess the
attribute of impressionability so that it may easily receive the impressions.

3. Importance of Money
Without money, individuals would have to devote more time to buying what they
want and selling what they do not want. Money simplifies matters. Workers are paid in
money, which they can then use to pay bills and make purchases. Money becomes the
medium of exchange. Good and services are then expressed in terms of money, a
common denominator. Money is an essential commodity that helps you run your life.
Exchanging goods for goods is an older practice and without any money, you cannot
buy anything you wish. Money has gained its value because people are trying to save
wealth for their future needs. Philosophically speaking, money cannot buy everything
but practically money is the basic thing that is used for calculating the status of any
person.

4. Coinage - The manufacture of money is done in a mint and the process is called
minting or coining or coinage. If gold or silver coins are to circulate freely at face value
rather than weight the public must be assured that coins are standard weight and
fineness. Coin circulation is promoted by molding precious metal into shapes and sizes
that are convenience and inscribing in them an attractive and readily recognizable
design
Coinage should be solely on government account and should manifest the
following:
 The coins should be issued only through sales to the public at their face
values in exchange for standard money
 Total coinage, total issue and total circulation should be unrestricted.
 The market value of the metal in the coins should be well below the face
value.
 The coins should be redeemable, without charge, delay, and limit at the
issue price and in standard money regardless of the extent of wear.
 The coins should be legal tended in private and public payments.
 The legal tended power should be limited to sums representing a proper
maximum use of the coins.
 The denominational system should be decimal with intermediate in
multiples of five.
 The coins should be convenient in size, attractive in appearance, durable
in use and individual in design.

4.1 Kinds of Coinage

4.1.1 Free Coinage – The government defines sizes, shapes, weight and
designs of coins but allows individuals to bring their precious metals to the mint
to cover such into standard coins. Owners of these metals are charged with
brassage or seigniorage fee.
4.1.2 Gratuitous Coinage – Total responsibility for minting is borne by
the government.
4.1.3 Limited Coinage – Government purchases precious metal in an
open market and mints them as a medium of exchange at face value higher than
its material content to facilitate trade.

5. Types of Money
5.1 Commodity Money - is a physical good that has intrinsic value, and use
outside of its use as money. The inconvenience of the barter system forced the creation
of a common medium or commodity to facilitate exchange. Since there was no uniformity
in the use of commodities as money, the following factors were considered:
a. General acceptability at the place and time
b. Utility other than as medium of exchange
c. High demand
d. Limited supply
5.2 Metallic Money – a money whose value of money (face-value) is greater
than the commodity value (intrinsic value) of money and due to economic development
and an improved standard of living, people wanted a better medium of exchange . Metals
proved to be more efficient and copper, iron, tin and lead were the earliest metals used
as money.
5.3 Paper Money – this is a country's official, paper currency that is circulated
for the transactions involved in acquiring goods and services. The printing of paper
money is typically regulated by a country's central bank or treasury in order to keep the
flow of funds in line with monetary policy. The gold and silver coins are cumbersome to
carry around when large transactions are to be made. The main purpose of paper money
is to minimize this inconvenience. The government issued money to represent certain
quantities of gold and silver those were kept by the government.
5.4. Coins – this is the official metal currency of a certain country made of metal.
Today, coins circulating in the world are of lower metal value to prevent the waste or
loss of precious metals and to facilitate the settlement of small obligations.

6. Classifications of Money – money can be classified according to the following:

6.1 According to Materials Used
a. Commodity money. This can be metallic in nature. It is used for
purposes other than as a medium of exchange. Precious metals like gold and silver are
used as commodity money.
b. Paper money. High quality paper materials are used to withstand wear-
and-tear over a long period of time and to minimize counterfeiting.
c. Bank money. These are checks or other paper notes issued by financial
institutions.
6.2. According to Character of the Issuer
a. Treasury Money – these were issue by the National treasury before
1949. They are notes and coins of various denominations.
b. Central Bank money – These were issue by the Central Bank after 1949.
They are Central Bank notes and coins circulating in the Philippines.
c. These are issued by the Philippine National Bank and other commercial
banks as promises to pay, legal tender, payable on demand at a future time to the bearer
or order.
6.3. According to Popularity
a. Paper Money – has no commodity value
b. Fiat Money – Inconvertible paper money with no reserve. Face value is
higher than the value of paper used.
c. Subsidiary Coins – representative full-bodied money made of base
metals to settle small transactions.
6.4. According to Face Value
a. Standard Money – a full-bodied money, authorized by law and having
the weight, fineness, denominations, and designs prescribed by the government as
standard basis for coinage.

7. Legal Tender – Any kind of money which, according to law, must be generally
accepted when offered as payment for any obligation expressed in terms of the country’s
monetary unit. Peso is the country’s legal tender.

8. Currency – This is any kind of money which has limited acceptability expressed in a
monetary unit.

Self-Help: You can also refer to the sources below to help you further
understand the lesson

Alminar-Mutya, R. (2017). Introduction to Philippine Money, Credit and Banking.

Manadaluyong: Anvil Publishing, Inc.

Walsh, C. (2017). Money, theory and policy. 4th Edition. Cambridge, MA: MIT
Press