BSP CURRENCY OPERATIONS

CENTRAL BANKS• Bank of Issue–Central banks have the privilege of issuing

currency notes– In 1694, the Bank of England acquired

monopoly rights of issue under a charter granted through an act of Parliament in return for advancing money to the Government–Other banks in England at that time were

also granted the privilege to issue notes within certain limitations

- Only the Bank of England’s notes issues were declared legal tender- The grant of monopoly to issue notes became the primary factor for the development of central banks

• Several factors favored the grant of monopoly of note issue

1. It allowed uniformity of notes in circulation2. It gave added prestige to the notes as

compared to other notes which were not declared legal tender by the state

3. It allowed better state supervision and regulation over a credit instrument that had been declared legal tender

Methods to Regulate the Issuance of Bank Notes

1. Partial Fiduciary Issue- this involves setting a limit to the notes issue, which are covered by government securities- any excess issuance has to be fully covered by gold- this method is inelastic because a drain in gold reserve would mean a contraction in notes in circulation

2. It involves the legislative body setting a limit on note issue without any required cover of gold- this method is rigid such that it would not always be able to meet market demands- it also provided no guarantee against inflation, if, Parliament deemed it necessary to increase the limit, regardless of whether economic conditions warranted such move or not

3. Note regulation specified that a certain percentage of note issue be covered by gold, and the remainder in other specified assets such as government securities and trade bills and in some instance also minimum reserve against deposits of the central bank- BSP notes and coins are issued against and in amounts not exceeding, the assets of the BSP, (international reserves, domestic securities, loans and advances, bank premises, and other fixed assets)

EVOLUTION OF THE PHILIPPINE CURRENCY

• The Story of Philippine Money Philippine money–multi-colored threads woven into the fabric of our social, political and economic lifeFrom its early bead-like form to the paper notes and coins that we know today, our money has been a constant reminder of our journey through centuries as a people relating with one another and with other peoples of the world

PHILIPPINE MONEY: A CELEBRATION OF THE FILIPINO

• Philippine Currency Banknotes – English Series (1949 – 1967)– English Series (Scrip Notes) – Pilipino Series (1967 – 1973)– Ang Bagong Lipunan Series (1973 – 1984)– New Design Series (1981 – 1993)– Bangko Sentral ng Pilipinas Series (1993 onwards)

BANKNOTE PRODUCTION PROCESS

1. Volume of banknotes for printingThe Monetary Board

approves the required quantities of banknotes to be produced annually by Security Plant Complex (SPC).

The banknote requirements are based on cash operations data, economic indicators as well as the projected needs of the regional cash units of the BSP.

BANKNOTE PRODUCTION PROCESS

2. Circulating life of a banknoteThe circulating life of banknotes ranges

from one to five years, depending on the circulating frequency and cash handling habit of the general public.

Since the lower denominations circulate faster, they have a much shorter lifespan than the higher denominations.

BANKNOTE PRODUCTION PROCESS

3. Security features of a banknoteThe security features of banknotes

consist, among others, of security thread, security fibers, watermarks, invisible fluorescent inks, optically variable ink, microprint and moire pattern and iridescent band.

BANKNOTE PRODUCTION PROCESSThe making of a banknote starts with the

conceptualization of design. The concept is drawn by an artist into a prototype banknote. Once the prototype is approved, a master die is prepared from which printing plates are produced.

Production then takes place involving the following steps:

A.Litho Printing. Impressions are printed on a rubber blanket cylinder. These are in turn transferred to the sheets of banknote paper. Both sides of the sheets are printed simultaneously with multi-color or rainbow background prints.

B. Intaglio Printing. After the background colors are printed, engraved features of the banknote are printed at the intaglio machines, which produce the tactile or embossed effect on the banknotes.

C. Sheet Inspection. The printed sheets are inspected for printing faults. Defective notes are cancelled and incinerated for security reasons.

D. Numbering. The good sheets go to the numbering machines for the printing of serial numbers.

E. Tenning. Numbered sheets undergo inspection of every tenth sheet for other printing defects which were not detected earlier.

F. Finishing. The numbered sheets finally go through finishing which involves cutting into notes, counting, packing

COIN PRODUCTION PROCESS

A. Raw Materials- The Mint orders raw materials abroad- These are coin blanks of various metallic composition (bi-metal copper nickel, nickel brass, copper-nickel, copper-zinc, copper)- The Mint orders die steel materials also from abroad to fabricate dies and collars in the minting of coins

COIN PRODUCTION PROCESS

B. COINING PROCESS- Coin blanks are tested for various physical and chemical attributes to ensure conformity with standard specifications- The coin presses stamp the obverse and reverse design on the coin blanks- Struck coins are counted and packed either through roll wrapping or bagging process

DIES AND COLLARS• DIES & COLLARS - are coining tools needed to

mint coins• COLLARS – the design for the coins edge (plain

or reeded)• DIES – are either the obverse or reverse – Obverse dies bear the design of the face of the

coin– Reverse dies bear the design of the back of the

coin

COMMEMORATIVE COINS AND MEDALS• Aside from circulation coins, the BSP also issues

commemorative coins which are also legal tender. Commemorative coins are produced in limited quantities and are issued to commemorate special events or persons.

• Commemorative coins may either be:– Proof Quality coins are those with frosted design with

mirror-like background finish.– Brilliant Uncirculated Quality coins are taken from the

first 50 strikes of from a brand new set of minting dies.– Circulation Quality coins conform with the specification of

the series currently in circulation with the design changed to the event or person being commemorated.

• Currency Coin Requirement = A + B – C + Dwhere:A = Additional coins to be issued, computed

from projected coins in circulation less total coins in circulation in the previous year

B = Unissued Currency Stock Committee (UCSC) buffer stock in coins

C = Currency Stock in coins, previous yearD = Coins to be replaced

• Currency Note Requirement = A + B – C + Dwhere:A = Additional currency notes to be issued, computed from projected notes in circulation + projected cash in NGs vault and deposit money banks vault less total currency notes issued the previous yearB = Unissued currency and Cash Dept buffer stock in notesC = Currency stock buffer in notes with UCSC and Cash Dept, previous yearD = Notes to be replaced

• SEIGNIORAGE– The profit from currency issue• Revenue is recorded on the basis of the coin’s

face value. Profit is reckoned from the difference between revenue and metallic content plus conversion cost• Income is earned on assets less the cost of

printing and distributing paper currency• Face value of the unsurrendered currency (for

the banknotes and coins not surrendered during the recall period and declared “no value”