Demonetization is the process by which a central bank removes the monetary value of a legal tender currency it issues. Demonetized currencies are no longer accepted as payment for goods and services.
The process of demonetization is widely practiced throughout the world, though reasons for demonetizing can be varied. Among the common reasons are the following:
- The prevention of counterfeiting
- Benchmarking with other countries
- A change in the type or form of government
- A change in the type of currency as part of political or social reform
- Redefining the value of money in response to hyperinflation
- Shift to a single design series of currency in countries where more than one series are in circulation
The BSP is demonetizing the old banknote series as a way to safeguard the integrity of our currency. As a matter of practice, central banks around the world change the design of their currencies that have been in circulation for over 10 years. In the case of the Philippines the old banknote series, introduced in 1985 or 30 years ago, is being replaced by the New Generation Currency (NGC) series which was launched in 2010.
Demonetization is within the BSP’s jurisdiction as stated in RA No. 7653, or The New Central Bank Act.
The Bangko Sentral may call in for replacement of notes of any series or denomination which are more than five (5) years old and coins which are more than ten (10) years old. Notes and coins called in for replacement in accordance with this provision shall remain legal tender for a period of one year from the date of call. After this period, they shall cease to be legal tender but during the following year, or for such longer period as the Monetary Board may determine, they may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the Bangko Sentral for this purpose. After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized. The Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.