A Strong Philippine Peso Is Not Always Good For Those Living In The Philippines
One of my favorite topics is how the rate of exchange between the dollar vs the Philippine peso. Some of the reasons are obvious. The main one being is that it has a major impact on my lifestyle. When the dollar suffers my fun living in the Philippines also suffers.
Also, I have a financial background with a college degree in accounting and I took a lot of finance courses as part of that. We didn’t study exchange rates very much but some of the same basic principles apply. And it just interest me because of my interest in financial topics. Now I fully admit that I have forgotten much of what I knew. Over the last few years, I have also done a lot of reading on the subject because the value of the Philippine peso now has a major impact on my life.
A significant benefit of the a strong Philippine peso is that it lessons the cost to the Philippine government in paying off its foreign debt. A couple of years ago the Philippines issued bonds in foreign currency though. I believe it was in the yen. Why would they do this? Because Japan is heavily in debt and they expect the value of the yen to fall. thus when they pay it back, they will be paying out less. So a strong Philippine peso would increase this benefit even more.
One thing I like to explore is that so many expats start complaining about the Philippine government is manipulating the value of the Peso. Yes there is manipulation of the value of the Philippine peso but I hold it is no where near the levels disgruntled expats claim it is. There is nothing to indicate that it is abusive manipulation.
They just say it and usually don’t back it up.
Does The Value of The Philippine Peso Always Rise In December
The peso has been strong over the last year but that doesn’t mean that this is result of unjust manipulation by the central bank of the Philippines. The people that run that bank are quite sophisticated and they know far better than I do that over valuing the currency of the Philippines has many negative effects.
For instance, it hurts growth of the economy. Loans are down in the Philippines and the main reason for this is the strong peso. Banks are more interested in holding the peso during such times rather than making more risky loans.
The money banks have borrowed from Bangko Sental ng Pilipinas is down by 71% this year! When a Philippine bank borrows money from the central bank they can loan out more dollars than they borrow.
This could mean that banks are loaning less. Fewer loans would slow business growth. Slower business growth means a slower rate of growth in the economy of the Philippines.
This is happening at a time when defaults on loans in the Philippines are substantially lower than they have been in the past.
So once again, my point is that a strong currency is not always a good thing.
Many like to point out that Philippine government is high in debt. That’s not really true. As a percentage of gross domestic product (GDP), the rate of debt is about the same as it has been historically. It is around 50%. The USA GDP is around 75% in comparison.
On a related subject, expats are fond of saying the dollar always goes down in December. That hasn’t held true this year. It wasn’t true last year either. I wrote a story about a month ago where I was hopeful the dollar would actually rise in December. Though I was unwilling to predict that it would.
Philippine Peso Did Not Rise in December
So far, the dollar has been stable in December of 2010. The exchange rate is almost exactly the same now as it was when I wrote that story. It went up a bit but then it came back down and seems to be holding steady around P43.8 to 1USD.
I’ve not seen as many articles about the demise of the Euro in recent weeks and I haven’t looked into how it is doing, my guess is that the Euro will not die and it has become a bit more stable.
I wish Obama would have been able to get the tax hikes on the rich he wanted as it would help to lower the US debt but I’m also glad that not all of the Bush era tax credits were lost. The compromise was needed. The middle class cannot afford a tax increase at this time. The US economy also would be hurt.
I’ve seen one very impressive analysis of the future of the US economy, not that it will do well but that it will enter into another recession in a few months. It was impressive in its logic and I fear it is accurate. Though I’m more optimistic than I was.
For those living on a fixed income, a recession is not such a bad thing. For American expats, it usually means a stronger dollar. When an economy does well the currency usually grows weaker. When economic times become more difficult, the currency usually gets stronger.
The central bank of any country is expected to participate in the value of its currency. The value of the Philippine peso will rise and it will fall.
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