All About the Philippine Peso Currency
While it is true that money cannot buy happiness, people always use currency in almost every move: buying groceries and other essentials, paying jeepney fare, and even ordering food in restaurants. Money, such as the Philippine peso currency, is very vital for an economy to remain afloat. It allows people to spend on things they need and want, which contributes to the country’s overall gross domestic product.
But what is currency? It is the paper money called bills or coins that are circulated in an economy. Economics explains that currency allows the concept of a universal store of value through instruments. Prior to this, people usually used the barter system. However, it is not as effective as the currency because not all exchanges are suitable.
Let us discuss further the Philippine peso currency, its history and where it is going.
The History of the Philippine Peso
The regulator subdivided the Philippine peso currency into one hundred centavos. Before its formal introduction in the country, people used the barter system or trading goods during a transactional exchange. Later on, trading small gold pieces and gold barter rings became the norm that replaced this.
Spaniards introduced the coins in 1521, around the time they colonized the country. These coins, however, were produced in various Spanish countries—resulting in the circulation of coins with significant inconsistencies in terms of purity and even weight. The Philippines only had its first mint established in 1861, so the coins will be standardized according to guidelines.
In 1898, the Philippines gained independence from a very long regime of colonization. At the same time, the country also introduced its first local currency to replace the Spanish-Filipino peso. Unfortunately, the United States of America colonized the Philippines in 1901. These colonizers, meanwhile, introduced a new currency valued at half a dollar in 1903.
This is not where the Philippine peso currency saga ended. When Japan occupied the Philippines during World War II, the Filipinos used new money in circulation.
Filipinos introduced its formal currency again in 1949. This was around the establishment of the Central Bank of the Philippines.
Currently, the bills are denominated in P20, P50, P100, P200, P500, and P100. Coins, meanwhile, are in denominations of P1, P5, P10, P20, 25 centavos, 10 centavos, and 5 centavos.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) or the Central Bank is the one responsible for crafting and enforcing the monetary policy. Monetary policy refers to the following:
- managing the supply and cost of money and credit in the country
- dictating the overall goods and service demand across the country
- attaining the price stability
Basically, the monetary policy helps in controlling the money supply in the country to make sure that everything is in order. Too much money in the financial system means the Central Bank has to tighten the monetary policy. Why? Too much money in circulation means higher inflationary pressures, which affect purchasing power. To tighten the monetary policy, the Central Bank hikes interest rates, so there will be more savings and less spending.
On the contrary, the BSP employs an expansionary move when there is too little money in the financial system. This means lower interest rates, encouraging more borrowing from banks. It could also encourage spending at the same time to boost the overall economy.
Overnight repurchase rate and reverse repurchase rate are the main instruments of monetary policy that the BSP is implementing. Open market operations, the legal reserve requirements, and rediscounting complement these tools.
In 2020, the Central Bank reduced such rates by a total of 200 basis points, an expansionary move, to inject additional liquidity into the economy. The BSP intended to boost consumption with a low-interest-rate environment. It targets many segments, including households, micro, small and medium entrepreneurs, and big corporates. A lower interest rate also entices clients to borrow money for personal spending or expansion plans for the part of the firms.
Bills and Coins
The Philippine peso currency has come along away. Given that the country is naturally rich in gold, the Filipinos used ore to create barter rings, jewel rings, and even the country’s first coin. The coins then, called Piloncitos, had a flat base bearing inscriptions of letters “MA” or “M”, which are similar to the Javanese script. This inscription created the identity of the country to the traders from China before the Spaniards colonized the Philippines.
During the Spanish Regime, the mints in Mexico and Spanish colonies produced cobs or macuquinas. The Spaniards then brought these earliest forms of coins to the Philippines. These are silver coins embossed with a cross on one side and the Spanish royal coat-of-arms on the other.
Called Spanish dos mundos, which translates to “two worlds,” many nations used these coins in heavy circulation from 1732 to 1772. It was known for its beauty as the coin shows twin crowned globes—which depicts Spanish rule over the Old and the New World.
The Republic of the Philippines issued its own coins and paper Philippine peso currency in 1898 as it asserted independence from the Spaniards. Filipinos minted two types of two-centavo copper coins in the Malolos arsenal. Printed as the Republika Filipina Papel Moneda de Un Peso and Cinco Pesos, the Filipinos circulated one peso and five-peso notes for public use. Pedro Paterno, Mariano Limjap, and Telesforo Chuidian signed the bills by hand. However, when the Philippines surrendered to the Americans a few years later, the latter forbade the use of the said currencies.
The Americans then placed a monetary system that is based on gold. The Philippine peso currency against the greenback was at the ratio of 2:1 at the time. In 1903, the US Congress gave the go signal for the Coinage Act for the country.
The Central Bank establishment allowed for the “Filipinization” of the currency in the late 1960s. Filipinos circulated in the 1970s the “Ang Bagong Lipunan” (The New Society) series notes printed in the 1970s. Meanwhile, the Central Bank issued in 1983 the Flora and Fauna (Flower and Animal) coin series.
A decade later, the Central Bank released new sets of coins and bills bearing its logo. It marked the new era of the Philippine peso currency.
The exchange rate refers to the price of a foreign currency unit compared to the domestic currency. For the case of the Philippine peso currency, it is usually compared with US dollars. In 2020, the peso traded within the P48:$1 level, which is stronger compared to the previous P50:$1 level. With the world under lockdown in 2020, imports slowed down, which meant lower demand for dollars. This resulted in a stronger Philippine peso currency.
The interbank foreign exchange market determines the value of the Philippine peso currency against the Greenbank. This means the forces of supply and demand dictate the value of the Philippine peso currency. The fixed change rate system sets a par value rate between both currencies, but it may change from time to time.
The Philippines currently follows a freely floating exchange rate system. This means the Central Bank relies on the exchange market to determine the Philippine peso currency’s value against foreign denominations.
Deemed as an essential economic factor, the exchange rate links the local and foreign markets for various products, financial assets, and services.
The Philippine Peso Today
According to reports, the Philippine peso currency is currently among the strongest currencies in the Asian region. It is a significant claim considering that the pandemic affected many countries severely.
The government credited this to the benign inflation rate and balance of payments surplus as foreign reserves reach an all-time high. Experts expect the consumer price growth in the Philippines to stay within the government target band in 2021. This could help in gaining a robust peso level.
If there is one thing that the Philippine peso tells, a nation’s story can be told on how it adapted with the currencies through the years. The Philippine currency has indeed evolved, showing maturity in its economy.