The Bangko Sentral ng Pilipinas (BSP) is the sole issuer of Philippine banknotes and coins, which serve as medium of exchange, unit of account, and store of value. Determining an efficient and effective denominational structure is inherent in this mandate. This study evaluates the existing currency mix using the model developed by Hentsch and analyzes the note-coin boundary based on D-Metric model.
Demand for banknotes and coins per denomination varies. Among the banknotes, the 1000-Piso is the most sought denomination, both in value and volume terms. This is in contrast to the demand structure in Malaysia and Thailand where the lowest denomination accounted for the largest share of outstanding volume of banknotes in circulation. Among banknotes and coins, demand for the 200-Piso banknote and low-denomination 5-Sentimo and 1-Sentimo coins is weak. Results of the application of Hentsch model shows large-scale deviation in corrected circulation of these three denominations, implying that denominations with low-to-nil demand may be phased out.
Equally important is the determination of banknote-coin boundary. Payne and Morgan developed in 1981 the D-Metric Model as guide for determining the note-coin boundary as well as in gauging the lowest coin and highest note denomination, based on declining purchasing power over time. The model was the basis of and is consistent with the recent conversion of 20-Piso banknote to coin. The D-metric results also favor the phasing out of low-denomination coins. To further rationalize the coin denominational structure, a price rounding scheme for transactions between consumers and merchants may be promoted. The D-metric approach also favors the issuance of a 2000-Piso denomination. However, an important consideration is the impact of the issuance of higher denominations in the financing of illegal activities.