The trade the pre-colonial tribes of what is now the Philippines did among themselves with its many types of pre-Hispanic kingdoms (kedatuans, rajahnates, wangdoms, lakanates and sultanates) and with traders from the neighboring islands was conducted through barter. The inconvenience of barter however later led to the use of some objects as a medium of exchange. Gold, which was plentiful in many parts of the islands, invariably found its way into these objects that included the Piloncitos, small bead-like gold bits considered by the local numismatists as the earliest coin of the ancient peoples of the Philippines, and gold barter rings.
The Spaniards brought their coined money when they came in 1521 and the first European coin which reaches the Philippine Islands with Ferdinand Magellan's arrival was the teston or four-reales silver coin. The teston became the de facto unit of trade between Spaniards and Filipinos before the founding of Manila in 1574. The native Tagalog name for the coin was salapi ("money").
With the establishment of Spanish Manila in the late 16th century, the Spanish introduced the silver real de a ocho, already known across the Spanish Empire colloquially as the peso, which was divided into 8 reales and further subdivided into 4 cuartos or 8 octavos.
The monetary situation in the Philippine Islands was chaotic due to the circulation of many types of coins, with differing purity and weights, coming from mints across the Spanish-speaking world. Spanish coins circulated freely with those from the newly independent Spanish colonies including reales fuertes, reales de vellón, peseta columnaria, peseta sencilla, pesos de minas, tomines, ducados, maravedis among others. Value equivalents of the different monetary systems were usually difficult to comprehend and hindered trade and commerce.
An attempt to remedy the monetary confusion was made in 1848, with the introduction of the decimal system in 1857 under the second Isabelline monetary system. Overseeing the conversion was Fernándo Norzagaray y Escudero, governor general in the period 1857-60.
Conversion to the decimal system with the peso fuerte (Spanish for strong peso) as the unit of account solved the accounting problem, but did little to remedy the confusion of differing circulating coinage. Renewed calls for the Philippine Islands to have a proper mint and monetary system finally came to fruition in September 1857, when Queen Isabel II authorized the creation of the Casa de Moneda de Manila and purchase of required machinery. The mint was inaugurated on March 19, 1861.
Despite the mintage of gold and silver coins, Mexican and South and Central American silver still circulated widely.
The Isabelline peso, more formally known as the peso fuerte, was a unit of account divided into 100 céntimos (equivalent to 8 reales fuertes or 80 reales de vellón). Its introduction led to the Philippines' brief experiment with the gold standard, which would not again be attempted until the American colonial period. The peso fuerte was also a unit of exchange equivalent to 1.69 grams of gold, 0.875 fine (0.0476 XAU), equivalent to ₱1,390.87 (refers to the modern peso; as of September 2015).
Coin production at the Casa de Moneda de Manila began in 1861 with gold coins (0.875 fine) of three denominations: 4 pesos, 2 pesos, and 1 peso. On March 5, 1862, Isabel II granted the mint permission to produce silver fractional coinage (0.900 fine) in denominations of 10, 20, and 50 centimos de peso. Minting of these coins started in 1864, with designs similar to the Spanish silver escudo.
The currency in the Philippines was standardized by the Spanish government with the minting of a silver peso expressly for use in the colony and firmly reestablishing the silver standard as the Philippine monetary system. The coin, which was to be later known as the Spanish-Filipino peso, was minted in Madrid in 1897 and bore the bust of King Alfonso XIII. The specifications of the coin was 25 grams of silver .900 fine. This configuration was also used in the creation of the Puerto Rican provincial peso in 1895 giving both coins the equivalency of 5 pesetas.
The new monetary standard finally established the peso as 25 grams silver, 0.900 fine (0.7234 XAG), equivalent to ₱942.535 modern pesos of as of 22 December 2010.
The Spanish-Filipino peso remained in circulation and were legal tender in the islands until 1904, when the American authorities demonetized them in favor of the new US-Philippine peso.
Asserting its independence after the Philippine Declaration of Independence on June 12, 1898, the República Filipina (Philippine Republic) under General Emilio Aguinaldo issued its own coins and paper currency backed by the country’s natural resources. The coins were the first to use the name centavo for the subdivision of the peso. The island of Panay also issued revolutionary coinage. After Aguinaldo's capture by American forces in Palanan, Isabela on March 23, 1901, the revolutionary peso ceased to exist.
After the United States took control of the Philippines, the United States Congress passed the Philippine Coinage Act of 1903, established the unit of currency to be a theoretical gold peso (not coined) consisting of 12.9 grains of gold 0.900 fine (0.026875 XAU), equivalent to ₱2,933.07 modern pesos of as of 22 December 2010. This unit was equivalent to exactly half the value of a U.S. dollar and maintained its purchasing power until the opening day of the Central Bank of the Philippines in 1949.
The act provided for the coinage and issuance of Philippine silver pesos substantially of the weight and fineness as the Mexican peso, which should be of the value of 50 cents gold and redeemable in gold at the insular treasury, and which was intended to be the sole circulating medium among the people. The act also provided for the coinage of subsidiary and minor coins and for the issuance of silver certificates in denominations of not less than 2 nor more than 10 pesos.
It also provided for the creation of a gold-standard fund to maintain the parity of the coins so authorized to be issued and authorized the insular government to issue temporary certificates of indebtedness bearing interest at a rate not to exceed 4 per cent per annum, payable not more than one year from date of issue, to an amount which should not at any one time exceed 10 million dollars or 20 million pesos.
When Philippines became a US Commonwealth in 1935, the coat of arms of the Philippine Commonwealth were adopted and replaced the arms of the US Territories on the reverse of coins while the obverse remained unchanged. This seal is composed of a much smaller eagle with its wings pointed up, perched over a shield with peaked corners, above a scroll reading "Commonwealth of the Philippines". It is a much busier pattern, and widely considered less attractive.
In 1942, the Japanese occupiers introduced fiat notes for use in the Philippines. Emergency circulating notes (also termed "guerrilla pesos") were also issued by banks and local governments, using crude inks and materials, which were redeemable in silver pesos after the end of the war. The puppet state under José P. Laurel outlawed possession of guerrilla currency and declared a monopoly on the issuance of money and anyone found to possess guerrilla notes could be arrested. Because of the fiat nature of the currency, the Philippine economy felt the effects of hyperinflation.
Combined U.S. and Philippine Commonwealth military forces including recognized guerrilla units continued printing Philippine pesos, so that, from October 1944 to September 1945, all earlier issues except for the emergency guerrilla notes were considered illegal and were no longer legal tender.
Republic Act No. 265 created the Central Bank of the Philippines (now the Bangko Sentral ng Pilipinas) on January 3, 1949, in which was vested the power of administering the banking and credit system of the country. Under the act, all powers in the printing and mintage of Philippine currency was vested in the CBP, taking away the rights of the banks such as Bank of the Philippine Islands and the Philippine National Bank to issue currency.
In a repeat of Japanese wartime monetary policy, the government defaulted on its promises to redeem its banknotes in silver or gold coin while promising to maintain the two-to-one peso to dollar parity. This decision, compounded with the deliberate overprinting of fiat banknotes, resulted in the peso dropping in value by almost 67% against the US dollar within the first three hours of opening day. The government effort to maintain the peg devastated the gold, silver and dollar reserves of the country.
By 1964, the bullion value of the old silver pesos was worth almost twelve times their face value and were being hoarded by Filipinos rather than being surrendered to the government at face value. In desperation, then-President Diosdado Macapagal demonetized the old silver coins and floated the currency. The peso has been a floating currency ever since, which means that the currency is a physical representation of the domestic debt and whose value directly tied to people's perception of the stability of the current regime and its ability to repay the debt.
In 1967, The National language was based on the Tagalog language according to Executive Order No. 134 requiring all coins and banknotes to be changed to Tagalog. Consecutively, the currency terminologies changed from centavo and peso to sentimo and piso. However, centavo is more commonly used by Filipinos in everyday speech.
From the opening of the Bangko Sentral ng Pilipinas in 1993, successive governments have continued to devalue the currency to lower the accumulated domestic debt in real terms, which in December 2005 reached ₱4.02 trillion.
Based on the current price of gold, the Philippine peso has now lost 99% of its original 1903–1949 value. As of September, 2015, it takes ₱1,390.87 modern pesos to equal the intrinsic purchasing power parity of the 1903–1949 Philippine Commonwealth peso, as per its legal definition: 12.9 grains of pure gold (or 0.026875 XAU).
The smallest currency unit is called centavo in Philippine English (from Spanish centavo). Following the adoption of the "Pilipino series" in 1967, it became officially known as sentimo in Filipino (from Spanish céntimo). However, "centavo" and its local spellings, síntabo and sentabo, are still used as synonyms in Tagalog. It is the most widespread preferred term over sentimo in other Philippine languages, including Abaknon, Bicolano, Cebuano, Cuyonon, Ilocano, and Waray, In Chavacano, centavos are referred to as céns (also spelled séns).
The American government deemed it more economical and convenient to mint silver coins in the Philippines, hence, the re-opening of the Manila Mint in 1920, which produced coins until the Commonwealth Era.
In 1937, coin designs were changed to reflect the establishment of the Commonwealth. During the Second World War, no coins were minted from 1942 to 1943 due to the Japanese Occupation. Minting resumed in 1944, including production of 50 centavos coins. Due to the large number of coins issued between 1944 and 1947, coins were not minted again until 1958.
In 1958, new coinage entirely of base metal was introduced, consisting of bronze 1 centavo, brass 5 centavos and nickel-brass 10, 25 and 50 centavos. In 1967, the coinage was altered to reflect the use of Filipino names for the currency units. 1-peso coins were introduced in 1972. In 1975, the Ang Bagong Lipunan Series was introduced with a new 5-peso coin included. Aluminium replaced bronze, and cupro-nickel replaced nickel-brass that year. The Flora and Fauna series was introduced in 1983 which included 2-peso coins. The sizes of the coins were reduced in 1991, with production of 50-centavo and 2-peso coins ceasing in 1994. The current series of coins was introduced in 1995, with 10-peso coins added in 2000.
Denominations below 1 peso are still issued but are not in wide use. In December 2008, House Resolution No. 898 was proposed to call for the retirement and demonetization of all coins less than one peso due to the high cost of manufacturing these coins.
In the 1950s, the exchange rate was 2 pesos against the US dollar. The fluctuating free rate was abolished in 1965. Several devaluations were followed, with the peso trading at 11 per dollar in 1983, and 20 per dollar three years later. In the early 1990s, the peso devalued again to 28 per dollar. Due to the 1997 Asian financial crisis, the peso devalued from 26 per dollar in May 1997 to 40 in 1998 and about 50 in 2001.
In 2005, About 78 million 100-peso notes with President Gloria Macapagal-Arroyo's surname misspelled as "Arrovo" were printed and planned to be circulated. The error was only found out after 2 million pieces of the notes were circulated and the BSP had ordered an investigation.
By August 2006, it became publicly known that the 1-peso coin has the same size as the 1 United Arab Emirates dirham coin. As of 2010, 1-peso is only worth 7 fils (0.07 dirham), leading to vending machine fraud in the UAE. Similar frauds have also occurred in the US, as the 1-peso coin is roughly the same size as the quarter but as of 2017 is worth slightly less than 2 U.S. cents. Newer digital parking meters are not affected by the fraud, though most vending machines will accept them as quarters.