How consumption culture affects the peso
Governor Remolona was not talking about the Filipino on the street but rather the Filipino as an aggregate representation of the country’s consumers and firms.
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Governor Remolona was not talking about the Filipino on the street but rather the Filipino as an aggregate representation of the country’s consumers and firms.
What is driving the peso’s value down? The peso-dollar rate fell to a new low again last week after breaching the P62 level. This is the fourth time new lows were hit since the start of 2026.
The concern over the currency has even reached the halls of the Senate, with no less than Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. invited to explain his views on the peso and inflation. It is unfortunate, however, that one of his comments was taken out of context.
Governor Remolona was referring to the Filipino’s “consumption culture.” He was trying to explain that overspending is what is driving the exchange rate lower. But he was also trying to caution that his explanation over what is causing a higher-than-peers inflation may be at risk of oversimplifying things. But his caveat appears to have been ignored by some quarters who have taken the statement to be a criticism of Filipino senses.
To cut through the noise, it helps to separate the cultural sting from the economic substance.
I will make three points: first, Governor Remolona was speaking about the economy in aggregate; second, a low savings rate matters because it links consumption, imports, and demand for dollars; and third, a consumption culture is only one part of the peso story, not the whole plot.
Governor Remolona was not talking about the Filipino on the street but rather the Filipino as an aggregate representation of the country’s consumers and firms. Savings not just from employees’ wages but also from the profits of firms.
When we (consumers and firms) consume more than we produce, this creates an income-spending gap. We need to plug that gap. It is either we produce more of the goods or services to be satisfied, or we buy from another producer who has extra goods or services.
An example is coffee, one of my previous topics this year. Our coffee consumption has been skyrocketing, both as individual consumers and firms (cafes and restaurants), but our coffee farms are unable to produce enough for our domestic demand.
What happens is we import from Indonesia and Vietnam, and even as far as Latin America. They export their excess coffee to us.
To satisfy that coffee craving, we need foreign currency — usually US dollars — to pay foreign suppliers. To get dollars, we sell pesos. When this happens across many import categories, demand for dollars rises and the peso comes under pressure.
Coffee is only one cup in a much larger pot. Rice, wheat, fuel, soy sauce, and restaurant inputs all add to the annual demand for foreign currency. That is why consumption behavior can matter for the exchange rate and why a low savings rate is not just a personal finance issue.
Economists might frame the same issue through risk aversion: if people are less worried about future shocks, they may feel less urgency to save today. If they are more worried about inflation, job loss, or emergencies, they may prefer to save and invest more. The technical label can be coefficient of relative risk aversion, or CRRA. The CRRA would be a theoretical way of explaining why we do not save as much as our peers.
There are two measures of savings rate. There is the gross national savings rate computed by the Philippine Statistics Authority (PSA) and as of end-2025, it is at 26.1 percent. While it is improving from the low of 19.3 percent in 2021, it is far from the average of 31.9 percent from the pre-pandemic window 2010-2019.
The other savings rate is computed by the World Bank, which places the Philippines at 8.4 percent, which is the lowest level since their data started in 1981. The difference between the two indicators is that on a macro scale, the PSA savings rate reflects the savings of all Filipinos (including OFWs), while the World Bank computed savings rate reflects the savings rate of the Philippines (consumers and firms in the country).
What this tells us is that our domestic economy’s savings rate is falling but the Filipino’s (wherever he/she may be) savings rate is below average but slowly improving.
It is the former savings rate measure that explains why the peso continues to weaken. All domestic consumers and firms (“we”) need to improve on savings, which is another way of saying we need to earn more than we spend, or we should spend less. That means improving our exports, attracting more tourists, traveling and importing less, and/or getting foreign investors to finance our consumption needs.
But just like Governor Remolona’s caveat, there is a risk of oversimplification when explaining why the peso is very weak. The peso is also affected by other factors, which is why the BSP’s job of managing inflation and a stable currency is challenging, particularly in today’s volatile global environment.
Hopefully, this explainer will help Filipinos understand the threats to the value of our money both within and outside the Philippines.
