On Friday, 23 September, data from the Bankers' Association of the Philippines showed that the Philippine peso depreciated to its lowest of P58.50, losing P7.501 or 14.7 percent vis-à-vis the US dollar since the start of the year. This was after the US Federal Reserve raised its policy rates to temper inflation, luring foreign funds to fly back to the US.
Several economists were pointing to the recent Fed rate hike as the reason for the strengthened dollar after the central bank raised key rates to 3 to 3.25 percent. It also signaled continued rate hikes in the fourth quarter of the year, tempering the cost of inflation.
When former US president Donald Trump stepped down from the White House, the US 10-year Treasury bond was only offering an interest rate of 1.10 percent. Twelve months into Joe Biden's administration, foreign funds took advantage of the higher rates, which have so far gone up by 3.56 percent as of 20 September.
This means that, for a dominant importer of oil like the Philippines, more pesos are needed to fund dollar-denominated fuel costs. This in turn will affect prices of commodities, consequently, higher cost of living.
However, experts do not consider this situation as alarming — the current foreign exchange scenario speaks more about the strength of the US dollar that is making all other currencies, including the peso, weaker. As columnist Bienvenido Oplas Jr. puts it, the dollar strengthening is temporary, built on soft sand due to the heavy US government borrowings and debt financing, and not really based on their strong economic business environment.
A weak peso is also not fundamentally disadvantageous to the economy. Other Asian countries like Japan and China have managed to turn their currencies' weak levels to their benefit. The Philippines can opt to emulate.
At the current peso-dollar exchange rate, the country will fare better in terms of higher OFW remittances, with overseas Filipino workers expected to send more money home to take advantage of the stronger US dollar. This is expected to prop up the purchasing power of OFW families and relatives.
Purchasing power contributes a huge chunk of the country's GDP, at 70 percent.
As of last year, OFW remittances hit a record-breaking $34 billion, which, according to the Bangko Sentral ng Pilipinas, accounted for 8.9 percent of the country's GDP.
In July 2022 alone, money sent home by OFWs increased by 2.3 percent to $3.24 billion from the $3.17 billion registered in the same month last year. This was the highest in seven months, or since the $3.3 billion recorded last December.
In addition, a weaker peso bodes well for exports and local consumption of domestic goods.
The country should capitalize on this by reducing the balance of trade through growing its exports more than its imports.
It must also lure foreign investments to invest more in the Philippines, given that their dollars would have a stronger power in our country.
This should also be a huge opportunity for foreign businesses, particularly outsourcing companies, to do business and expand operations by hiring more people.
The global phenomenon affecting our currency can be a boon or a bane for our economy. It is up to us to decide whether we make the best of the situation or fall through.
