What Could Be a Motivation to Over Value The Philippine Peso?

I have been trying to understand why the Philippines government might have a motive to artificially increase the value of the Peso.  Now I know a lot of expats grumble about it happening.  Frankly, a lot of expats grumble about everything.  I’d like to see why they might do it.

I think I found a motivation.  If the Philippines is going to issue bonds or T-bills the higher the value of the Philippine Peso the more dollars that will bring into the country.  Now I in no way can say the Philippines is doingstacks_of_money this.  It might provide motivation however.

With all things financial, there is always a negative to any kind of manipulation.  That wouldn’t stop someone from getting rich.  If someone had the ability to push the value of the dollar down they could issue these bonds and take in the dollars, more dollars.

If they had this ability, they could later push the value of the peso down and cash in their dollars.  Could the government or a large investor do that?

There is an official government rate, but that’s not the same rate the dollar trades at.  I don’t believe the government can affect that other than buying or selling massive amounts of the currency.  The same would be true of any kind of financial instrument.  The numbers are so large that only the largest of stakeholders could sway the market.

At this time, I offer this idea up as a possibility.  I will do more research on it.  The government can certainly influence the value of its currency.  Lowering and raising their interest rate will do that.  Issuing bonds will also do it.

At the time of writing this, Reuters is reporting that the Philippines is contemplating issue bonds in July.  Investors are saying the number will likely be around 30 billion peso.   The Philippine government is not giving a number at this time.  They say it will depend on cash position and how they see the market at that time.

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Filed under: Living In The Philippines

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