Reference no: EM133071427

Discuss how the Bangko Sentral ng Pilipinas uses the D-Metric coin-note principle in determining the denominational structure. Provide a short and substantial answer.

Notes:

D-Metric coin-note principle

The D-Metric is a currency management procedure used to determine the most effective and efficient denominational structure. Basically employing the relationship between average daily wages and denominations, it defines the "Coin-Note Boundary" in the currency structure. With increasing average wages, some banknote denominations have to change to coin denominations.

The D-metric approach utilizes a structure of six (6) coin denominations and another six (6) note denomination for a total of twelve (12) denominations. Column 1 of the coin group is assigned to the coin with the lowest face value and column 6, to the coin with the highest face value. Similarly, column 1 of the notes group is assigned to the note with the lowest value and column 6 to the note with the highest value. The face value of the denomination in each column corresponds to a ratio of the average day's pay, designated as the variable D, to a constant. The area between the notes group and the coins group is known as the coin-note boundary. As mentioned earlier, as the average day's pay increases, the denomination along the note-coin boundary may move from the notes group to the coins group. An example is using a daily average wage level of P250.00 on the D-metric model, the 10-Piso note moves from the notes area to the coins area. This means that the 10-Piso banknote denomination can shift to a coin form. The D metric approach can provide indicators that together with other factors may yield meaningful inputs in the currency structure decisions on:

a) the coin denominations:

b) the banknote denominations; and particularly.

c) whether the denomination in the Coin-Note boundary should be a note or a coin.