Page 94 - Special Topic Session (STS) - Volume 4

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the quality of bank notes in circulation, which may, in turn, lead to inability to
distinguish genuine notes from counterfeits.
The BSP also has the exclusive authority to withdraw from circulation notes
and coins which are already unfit and mutilated and replace them with good
quality ones. In line with the authority to issue currency, and withdraw and
replace the unfit ones from circulation, the BSP plans the currency order based
on the forecasts of currency demand. Specifically, it determines how much
banknotes and coins should be ordered and in what denomination, to serve
the requirement of the economy, while keeping enough inventory from its
vault as a safety precaution to meet unexpected spikes in demand.
The BSP plans the currency order two years in advance to cover a ten-year
forecast horizon. As a matter of procedure, the estimates for first two year
period of the forecast horizon are binding, which means that once the
1
forecasts have been approved by the BSP Monetary Board then these become
the basis for the production plans of SPC, plant capacity assessment, budget
allocation for procurement of banknote printing work materials and coin
blanks needed, as well as budget and planning for shipment of currency,
including logistics, and mobilization of security personnel.
Because of the many important considerations attached to currency order,
it is imperative that estimates of the BSP on annual currency demand must be
near accurate.

2. Role of Cash in the Philippines
Cash remains an essential medium of exchange in the Philippines. Data
indicate that it continues to grow and has yet to show signs of decline in either
use or preference. Results of the 2014 Financial Inclusion Survey indicated that
98 percent of retail transactions in the Philippines continued to be facilitated
through cash. Currency in circulation, which comprises 97 percent banknotes
2
and 3 percent coins, has been steadily growing in tandem with economic
growth. In 2018, currency in circulation which grew by 17.6 percent outpaced
the growth of nominal gross domestic product (GDP) at 10.2 percent during
the same period. Moreover, share of currency in circulation (CiC) to total
liquidity (M3) has been stable moving within a narrow band of 12 - 16 percent
over the past 18 years. New payment systems such as usage of electronic
transaction for payment and settlement can lessen demand and use of cash.
However, such remain very low in the Philippines. Based on a 2015 report by
Better than Cash Alliance, only 1 percent of the 2.5 billion monthly retail
payments were done electronically. This is attributed, in part, to the high ratio
3

1 The BSP Monetary Board is the policy making body at the BSP.
www.bsp.gov.ph/payments/nrps_overview.asp
2
3 Gilberto M. Llanto, Maureen Ane D. Rosellon, and Ma. Kristina P. Ortiz. E-finance in the
Philippines: Status and Prospects for Digital Financial Inclusion (Discussion paper series no.
2018-22).
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