Is The Value of The Peso is Overstated?

That is what I keep hearing, I know my loyal blog followers should already know that there are many reasons why the government can harm its economy by overstating the value of the peso. Many more don’t know that and continue to think that the Philippines government is elevating the value of the peso.

Value of the PesoI need to write about it. I have a problem with the expat complainers, I admit it. Most of the time the complainers are off the mark. Not long ago someone on FaceBook said something like “If the Philippines government let the air out of the peso it would drop like a rock.” I didn’t ask him where he got the information that the government was doing that.

During the heat of the debt ceiling negotiations, the dollar fell below 42 and once again the central bank of the Philippine stepped in to prevent a disruptive slide in the dollar to Philippine peso currency trade. That is exactly what they are suppose to do. Prevent disruptive movement in the value of a currency regardless if the change increases or decreases the value of a currency.

On July 26, the Philippine central bank was estimated to have bought as much as US$200 million at various levels as the peso climbed to its highest in three years. The US dollar hit a low of P41.90 on Aug. 1 but has since recovered a bit, trading at P42.50 at 0750 GMT Thursday.

Manila Bulletin

The Bangko Sentral ng Pilipinas has done this several times over the last year. When the dollar rebounds and it will sometime in the distant future, I’ll have to point people back to this article. Then the central bank of the Philippines may find times to attempt to lower the strengthen the value of the peso.

Can’t Stop Increase In Value of The Peso

<!– google_ad_section_start –>The central bank is indicating though that it can’t stop the peso from rising in value against the dollar. They remind people that the dollar has been falling and that the people of the Philippines may just have to accept a lower dollar value and learn to live with it. Currency traiding with the dollar to Philippine peso will remain low for some time.<!– google_ad_section_end –>

The Philippines has inflation to contend with and fighting that will tend to increase the value of the peso. The other side of that is that inflation itself will lower the value. Those moves may offset each other. Every time the forecast for inflation increases in the Philippines the dollar appreciates in the short run. The bank has raised interest rates three times this year if my memory serves me correctly. Which is always a risk. The bank has also now increased reserve requirements which means fewer pesos in circulation and thus less supply. These things are meant to slow growth and put the brakes on inflation. They also increase the value of the peso. Once the shock of inflation wears off in the fickle short term market these moves will tend to increase the value of the peso.

The central banks attitude may also be the beginning of telling people to rely more on other currencies. If that is the hidden message here, that is a bad signal toward the outlook on the dollar as far as Bangko Sentral ng Pilipinas is concerned.

I often find people that are surprised to hear that the Philippines moves to increase the value of the dollar and I’ll continue to do my part in correcting the misinformation out there. Information based purely on a guess. The guess is that the Philippines is corrupt and the value of the dollar is down, it must be more Philippines corruption. Nothing could be further from the truth.

That doesn’t mean that someone close to the decision making process and knows the banks moves before hand couldn’t use that insider information to make a huge amount of money. They could and that level of corruption could be going on. I don’t know. The value of the peso is up because the dollar is so weak.

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Filed under: Dollar To Philippine Peso

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