INSTEAD of literally removing ‘dirty money’ from circulation through demonetization, bank-secrecy reform, digitalization and transparency measures are more targeted and capable of real change, according to the Bangko Sentral ng Pilipinas (BSP).
In a research blog, BSP officials Maria Margarita Debuque-Gonzales, Mamerto E. Tangonan and Eloisa T. Glindro wrote that financial transparency reforms offer far greater promise in combating corruption.
Among the reforms proposed is changing the country’s Bank Secrecy Law, which remains one of the strictest in the world, according to the BSP.
Amending the law, the authors said, would empower investigators to trace illicit funds, match deposits to asset declarations and build prosecutable cases.
They also recommended digitalizing and streamlining procurement to minimize discretion and leakage, and strengthening anti-money laundering and counter-terrorism financing enforcement, particularly for politically exposed persons.
Promoting broader financial inclusion through publicly supported digital payment systems to lessen reliance on physical cash was also among the measures highlighted.
‘As international experience shows, denomination or payment-system reforms are most effective when sequenced with broader structural shifts-such as digital adoption, transparency initiatives and institutional strengthening-rather than pursued in isolation,’ the authors wrote.
Although removing the highest denominations from circulation to flush out ‘dirty money’ from the banking system to confront graft may be ‘tempting,’ cash is still king in the Philippines.
The P1,000 bill dominates daily transactions and is preferred for regular and recurring transactions by Filipinos, according to the BSP.
‘The P1,000 bill, in particular, is the economy’s workhorse,’ they said.
Citing the BSP’s Currency Policy and Integrity Department (CPID) draft working paper, the P1,000 bill accounts for 83 percent of the total value and 40 percent of the volume of all banknotes in circulation.
The CPID estimates that replacing the P1,000 and P500 notes, or about 2.5 billion pieces worth P2.2 trillion, would absorb 93 percent of the value and 51 percent of the volume of all notes in circulation.
This would cost around P11.5 billion just in printing, excluding replacement, storage, transport and destruction costs, according to CPID.
It would overload automated teller machines and cash drawers, and require expanded armored car logistics and more vault space for banks and businesses.
‘The logistical cost would far outweigh any potential benefit,’ the BSP officials said.
Moreover, they cited an analysis by the BSP suggesting that the P1000 bill remains appropriate for current price levels, and an even larger denomination might be justified.
During the 2020 pandemic, withdrawals of P1,000 notes hit P1.3 trillion, showing public reliance on cash as a safe asset.
‘Eliminating this denomination could disrupt liquidity, particularly for households and small firms that remain outside the formal financial system,’ they said.
Retiring high-value notes may appear as a ‘clean break with the past’ by removing ‘tainted’ money from circulation, but it is ‘deceptive,’ the authors added.
‘As seen in some developing economies, sudden demonetization can erode confidence in the central bank and fuel suspicion of political motives,’ they noted.
In developing economies where institutional trust still needs to be nurtured, credibility is hard to regain once lost, they added.
Palace has no stand yet
Despite the BSP’s opposition to the proposal to ‘demonetize’ P1,000 and P500 bills, Malacañang has yet to rule out the said measure.
Palace Press Officer Claire Castro said the Marcos administration is still open to the proposal made by Former Finance Secretary Cesar V. Purisima to phase out said bills and make P200 the highest circulating bill.
Purisma claimed the measure will discourage corrupt officials from moving large amounts of illicit cash. Legislative hearings on the raging flood-control fund anomalies have unearthed practices of physically withdrawing boxes of cash, loading them on to ordinary cars and stocking them in mini-warehouses or even condo units of syndicate cohorts.
‘So, we will study it, because if it is not good and has a negative effect [on the public], we will study it to balance the pros and cons of what is being suggested.’ she said in Filipino in a press briefing Tuesday.
BSP Governor Eli M. Remolona, Jr. earlier expressed his reservation on the measure since it will cause inconvenience the public, when it comes to using bills.
Currently, BSP mandates banks to report transactions, which involve P500,000 or more.
Castro said the economic managers will still look into the matter.
‘I will first ask the DOF [Department of Finance] [about the] question so that the answer is more detailed,’ she said.