CHAPTER 1

Central Banking In Historical Perspective

I. Spanish Colonial Money System• Barter – settling economic claims with items

i.e., rice, coarse cloth, metal bells from China, rolls of silver wire, gold and silver by weight

• Different monetary unitsoRupee – original monetary systemoMoney from ChinaoMoney from Spain brought by Miguel

Lopez de Legaspi in 1571

• In 1627, Spanish officials were paid salaries quoted in gold pesos

• Manila has always been short of money• The galleon trade from 1565 to 1815

helped to ease the scarcity of money • Economic accounts are measured in (a)

pesos, reales and cuartos, (b) gold, reales, granos and cuartos, (c) pesos, reales, cuartos and maravedi

• Reconciling accounts became immensely chaotic (peso = 8 reales, reales = 17 cuartos)

• On March 31, 1837, circulated coins minted from Central America, Mexico and some South American countries are re-stamped for circulation in the country

• On September 8, 1857, Phils. minted its own money by a royal decree issued by Queen Isabel II to end the confusion over the proliferation of diverse use of gold, silver and copper

• Doblon, Spanish gold coin, is equal to 80 reales vellon ( Spanish copper coins)and escudo equal to 40 & 20 reales vellon

• Phil. peso was equivalent to 98.4 cents of the USD

• On March 5, 1862, another decree was issued to Manila mint to re-coin all silver at 50-, 20-, and 10-centavo denominations

• In 1876, Manila mint has supplied gold coins worth P20 million and silver coins worth P1 million

• Other coins were imported from Mexico, Spain, and other parts of Spanish America

• The money stock was augmented by the issuance of paper currency by the Treasurer of the Philippine Islands

• From 1862 to 1877, gold mining in Australia and California kept increasing the world output of gold

• Gold, relative to its abundance, emerged as the standard of exchange value throughout the Phils.

• In 1880, gold coinage in the Phils. was displaced by huge imports of Mexican and Spanish silver dollars.

• In 1884, under the pressure of Gresham’s law, the gold coin simply vanished as a means of settlement of economic claims in the country

• In 1897, before the winding of the colonial administration, Spanish Govt: (1) Decreed to issue minting of 5 peseta coin and (2) Coinage of Alfonsino, 6 million peso pieces. Alfonsino contained 25 grams of .900 fine.

• By the end of the Spanish colonial administration, the money stock of the Phils. include:–Mexican pesos $20 to $40 million, badly worn–Alfonsino pesos P5.5 million containing pure

silver of 347.75 grains–Manila minted Spanish-Filipino silver coins

worth $10 million in 50, 20, & 10 centavos containing pure silver of 334.69 grains–Assorted and unknown quantity of Spanish

peso

–Manila minted Spanish-Filipino silver coins worth about $10 million in 50, 20, 10 centavos containing pure silver of 334.69 grains–Assorted and unknown quantity of

Spanish pesos, silver, copper, and large number of Igorot copper coins–Bank notes worth P3,400,000 issued by

El Banco Español Filipino de Isabel II (renamed as Bank of Philippine Islands)