Tuesday, October 09, 2012

How True is it that the BSP Refuses to Print Money?

My colleagues recently posted a report which says that the BSP has been hesitant to print money.

From the Inquirer  
The Bangko Sentral ng Pilipinas has ignored proposals for it to print more money so that the peso will become weaker than it is now against the US dollar.

Although the BSP admitted that it has been buying dollars from the market to help temper the appreciation of the local currency, it stressed that it would not increase its dollar-buying activities just so the peso would become artificially weak.

According to BSP Governor Amando Tetangco Jr., the act of printing more money to significantly weaken the peso will have serious and adverse effects on the economy.

“A few have encouraged the BSP to ‘print more money’ instead of sterilizing as a response to capital inflows. They would like the BSP to be more ‘resolute’ in influencing the exchange rate,” Tetangco said in a speech during an economic forum Friday.

“My response to this is that doing so would be inflationary. [It] would lead to a tremendous expansion in domestic liquidity that would fan price pressures,” Tetangco explained.
While I should be the first to rush in to applaud and to embrace Mr. Tetangco for such supposed gallant stand against political pressure, I would first inquire if such assertions has been true.

Just to show some charts: 


The BSP, as well as other, ASEAN peers as I pointed out earlier has been expanding their balance sheets like everyone else.


From Trading Economics: (bold emphasis mine)
Money Supply M3 in Philippines decreased to 4607662 PHP MIL in July of 2012 from 4738239 PHP MIL in June of 2012, according to a report released by the Bangko Sentral Ng Pilipinas. Historically, from 1980 until 2012, Philippines Money Supply M3 averaged 1276131.0 PHP MIL reaching an all time high of 4738239.0 PHP MIL in June of 2012 and a record low of 56544.0 PHP MIL in January of 1980. 


Broad money—defined by tradingeconomics as the sum of currency outside banks; demand deposits other than those of the central government; the time; savings; and foreign currency deposits of resident sectors other than the central government; bank and traveler’s checks; and other securities such as certificates of deposit and commercial paper


Quasi Money –-defined by tradingeconomics.com as time, savings, and foreign currency deposits of resident sectors other than the central government.


The Money and quasi money growth (annual %) in Philippines was last reported at 5.31 in 2011, according to a World Bank report published in 2012. Average annual growth rate in money and quasi money. Money and quasi money comprise the sum of currency outside banks, demand deposits other than those of the central government, and the time, savings, and foreign currency deposits of resident sectors other than the central government. This definition is frequently called M2; it corresponds to lines 34 and 35 in the International Monetary Fund's (IMF) International Financial Statistics (IFS).
Although money and quasi money growth has declined in 2011, they are still far above from the GDP 3.7% growth rate of 2011.

The BSP have NOT been printing money? Perhaps in the future, but certainly NOT from the past and recent past evidences shown above. 

But I would certainly bet against such "heroic" iconoclastic idea, given that money printing has been the new dogma for central banking. If global central banking is a cartel, then Mr. Tetangco with his supposed "sound banking" approach will surely lose his job.


Anonymous said...

To all of you replying and blogging, I just want to know answers for these simple questions:

1. What are the causes of rising prices?
2. What solutions can you give so that the price in the market do not rise?
3. What solutions can you give so that the purchasing power of Peso will rise? Or the value of the Philippine Peso contra US Dollar will rise? (Example: PhP 1.00 = US$ 2.00).

If all of you can answer this, then you really are concerned economist, otherwise, you are all just plastic with hidden intentions against the welfare of the people.

benson_te said...


Thanks for your comments.

If you have counter explanations to the above then just say or explain it.

I would suggest that ad hominem won't help anyone.

Hope this helps,