Page 95 - Special Topic Session (STS) - Volume 4

STS566 Iluminada T. Sicat
of unbanked population. According to the 2014 survey of Philippine Consumer
4
Finance, 86% of Filipino households remain to be unbanked. Access to
electronic payments is mostly associated with maintenance of a deposit
account with the bank. Concerns on dependable IT infrastructure,
interoperability concerns across digital financial service providers and IT-
related security issues associated with digital financial criminality such as cyber
thievery, fraud, identity theft and cyber-attack, are among the reasons cited
for the low usage of electronic and online payment transactions. While the BSP
has implemented many initiatives in the regulatory front and continue to
introduce many more initiatives as part of its financial inclusion program to
address the barrier and unveil greater use of electronic payments in retail
transactions, many believe that cash will remain a dominant medium of
exchange in the retail payment space over the medium- to long-term. The BSP
hopes to bring up share of non-cash transactions to 20 percent by 2020. Given
this premise, it is thus vital that the BSP should have a robust forecasting
model of currency demand.

3. Currency Demand Framework
The process in currency forecasting in the Philippines consists of 2 levels,
one involves forecasting at the national (aggregate) level, and the other, is for
regional allocation. Also, part of the forecasting exercise is to estimate the
denominational mix. Forecasted currency by denomination is based primarily
on historical trend but is also adjusted to take stock of the changes or
anticipated changes in denominational preference over time, caused by
emergence of alternative payment infrastructure such as use of electronic fund
transfer at point of sale, use of plastic cards for payments, and increase in the
number of automated tellering machines (ATMs). It has been observed that
demand for higher denomination banknotes rose as the number of ATMs
installed increased. Similarly, the number of electronic fund transfer at point
of sale such as use of debit card, has a negative effect on the demand for low
denominations. A comparison of the denominational mix of the currency in
circulation in 2000 and 2018 in the Philippines showed an increase in the share
of higher denominations, particularly for 1000P, 200P, and 100P notes. By
contrast, the share of 20P declined. This shift in denominational mix was in
step with expansion in the number of off-site ATMs. Banks demand higher
denominated notes to save them from more frequent reloading of cash in
their machines.
Aggregate Demand. In forecasting the aggregate currency demand for the
Philippines, the determinants are based on economic and non-economic
variables. Specifically, currency demand is influenced by 3 factors, namely 1)
the transaction demand to support economic needs and changes in price

4 Bangko Sentral ng Pilipinas. Consumer Finance Survey (2014).
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