January 22, 2014

Weak Peso is Good

 As of January 20, 2014 Peso exchange rate is in record low PHP45.2:$1. There are good side and bad side of weak peso. Yet, it should be remembered that exchange rate is the result of demand and supply. When demand for Peso is high, meaning more people would want to hold Peso currency than foreign currency (Dollar), then the value of Peso is also high.

When value of Peso is high, Dollar can be purchased at lower price. For example, today Peso is weak at 45.2:$1, after three months Peso exchange rate bounce back to normal record 43:$1. This means that you need 45 Pesos to purchase one Dollar today and after three months if Peso became strong you will only need 43 Pesos to purchase one Dollar.  

What is the implication of weak peso to Philippines economy? Weak Peso is only harmful if Philippines is purely import dependent to one supplier country. Based on example above, when Peso is weak, purchasing a Dollar is expensive, thus, price of imported goods will increase. However, in this present age finding a substitute good is no longer a problem because of globalization. Which means that if one company finds that the price of imported goods is increasing then they can easily shift to other supplier country that offer goods at lower price.

On another positive note, weak peso is good because greater portion of the Philippines society is heavily relying on Overseas Filipino Workers (OFW) Remittances; weak Peso expands that value of Dollar remittances.

Philippines has a Balance of Payment (BOP) surplus of $5.085 billion in 2013. Banko Sentral ng Pilipinas' BOP surplus forecast for 2014 is $3 billion.   

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