– Armando L. Suratos

This paper discusses how abaca, an indigenous fiber more popularly known as “Manila hemp”, came to be part of Philippine banknotes. At the early stages of the operation of the Security Plant Complex, the Bangko Sentral ng Pilipinas already started investigating the feasibility of using abaca as banknote paper. Initial studies involved the use of 100 percent abaca paper. The result of the study was encouraging and laid the groundwork for further studies on abaca-cotton blends, which involved, in various stages, local paper and abaca pulp producers, European banknote paper manufacturers and the laboratories of the Security Plant Complex. Sometime in 1999, the BSP invited its banknote paper suppliers to pursue the development of an abaca-cotton blend that would meet the current specifications for Peso banknote paper. The study produced an 80 percent cotton-20 percent abaca banknote paper characterized by high folding endurance, tear resistance, tensile strength, wet strength and bursting strength. Opacity values are a bit low, owing to the less voluminous fibers of abaca compared with cotton fibers. The cotton-abaca blend is now found in the 1,000-, 500-, 200-, and 100-peso denominations. The first such issue came out in the 2001 series.

– Amando M. Tetangco, Jr. and Ma. Cyd N. Tuaño-Amador

The BSP’s shift to inflation targeting has underscored the central role of information in the conduct of monetary policy. As a forward-looking and an information-intensive approach to monetary policy, the shift to inflation targeting has required the use of a wider set of information variables on the economy than had been previously utilized. A well-organized system for economic statistics - based on reliable, timely and comprehensive information - enable informed decisions and the efficient functioning of markets. It is also an essential element in strengthening the policy decision-making process, since it provides a focused and consistent framework for setting the monetary policy stance. The availability and quality of information - particularly forward-looking information - can still be improved, however. The BSP will thus continue to support efforts to strengthen the process of compilation, reporting and analysis of information that have a bearing on the inflation performance and the inflation outlook.

– Thomas Benjamin B. Marcelo

Electronic banking generally refers to the provision of banking products and services through electronic channels such as the personal computer, through landline and mobile phone connections or through the ubiquitous automatic teller machines (ATMs). These electronic banking products include the development of electronic money schemes that are aimed at facilitating retail payments. However, electronic banking products, particularly electronic money also raise monetary policy and supervisory issues for central banks because of the potential of electronic money to be a substitute for bank notes and coins. The article reviews these issues and discusses the possible central bank policy responses to maintain the effectiveness of existing monetary policy instruments and reinforce existing supervisory policies in light of the challenges posed by electronic banking activities and electronic money products.

– Dennis D. Lapid

This paper conducts a simple statistical test for evidence of "contagion" in financial markets during the 1997 Asian crisis, using daily data on exchange rates and stock market indices for several Asian countries, including the Philippines. Contagion is defined as the spread of market disturbances from one country to another, as evidenced by linked movements in exchange rates, stock prices and so on. The results indicate that contagion effects during the Asian crisis were generally stronger in exchange rates than in equity markets, and that the Philippines' currency and stock markets were affected by contagion during the period. These findings are broadly consistent with those from other empirical work on the Asian crisis.

– Loreto M. Bernaber and Marriel M. Remulla

The Flow of Funds (FOF) in its simple variant is the integrated capital and financial accounts of the 1993 System of National Accounts (SNA) and in its more detailed form consists of a matrix of financial flows that shows who lends to whom and with what instrument. It shows the financial assets that net borrowing sectors use to finance their deficits and the financial assets that net lending sectors use to allocate their surpluses. It integrates within a single framework macro-aggregates from the harmonized frameworks of the SNA, the Balance of Payments (BOP), the Monetary and Financial Statistics (MFS) and the Government Finance Statistics (GFS). This makes the FOF a powerful tool for analysis and data validation since inconsistencies and deficiencies in the data are detected when put together in an integrated framework. This report provides a conceptual background on the FOF, an overview of the Philippine FOF, the highlights of the results of the 1996-1999 Philippine FOF and future direction for updating the framework and improving the estimates.

– Diwa C. Guinigundo