OpinionsEcon 101Impact of peso-US dollar exchange rate

Impact of peso-US dollar exchange rate

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Are you happy with the exchange rate of P49.20 to $1.00?

The rate reflects developments in the country’s economic fundamentals wherein a weaker peso against the dollar is a positive development for sectors whose earnings are denominated in US dollars. These sectors include exporters, as well as overseas Filipinos and their dependents who now receive more pesos for every dollar they exchange.

In understanding the issues related to exchange rate developments and the government’s policy responses, it is important to remember that the international competitiveness of Philippine exports is affected by trade policies, incentive structures, and macroeconomic environment which affect productivity and the cost of doing business.

In other words, our government does NOT fix the exchange rate at a given level, but instead allows the interplay of supply and demand for the currency to determine the exchange rate.

Why do we need to abide by the exchange rate? The exchange rate is the price of a unit of foreign currency in terms of the domestic currency, in every exchange rate quotation, where two currencies are involved.

It is the basic link between the local and the overseas market for various goods, services and financial assets.

Changes in the exchange rate tend to directly affect domestic prices of imported goods and services. A weaker peso increases the peso prices of imported goods, as well as import-intensive services such as transport.

It can result in lowering the price competitiveness of our exports versus the products of those competitor countries whose currencies have not changed in value.

The cost of servicing the country’s foreign debt, with a depreciated peso, increases the amount of pesos needed to buy foreign exchange to pay interest and maturing obligations determined by the Bangko Sentral ng Pilipinas.

OFWs send more dollars to their families before Christmas, who in turn exchange their dollars to pesos for their shopping. And with the weaker peso, OFWs and their families will have more shopping money.

The tourism sector will project more foreign tourists coming to the Philippines, while domestic tourists find it more expensive to visit places abroad.

Similarly, the hotel industry, the business processing operations including call centers, back office operations, medical and legal transcription services will be benefited.

To foster financial stability, the BSP continues to undertake financial literacy campaigns to promote a culture of savings among OFWs and their families, and safe practices in investing so as not to become victims of scams.

The peso is expected to remain relatively stable despite the risk posed by volatile oil prices, turbulence in the financial markets due partly to uncertainty in the Trump-led US economic policies, and global credit tightening.

The peso is expected to weather these external shocks with sound macroeconomic fundamentals–particularly a resilient economic growth, sustained dollar inflows from overseas Filipino remittances, foreign direct investments, as well as exports receipts which further provide support to the peso.

These concerns will be brought by President Digong next week to the Asia-Pacific Economic Cooperation leaders’ meeting in Peru. Abangan!

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Author’s email: [email protected]

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