Peso depreciation: Weakening peso or strengthening dollar?

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When we talk about currency depreciation, does it mean weaker peso for us and currency strengthening for our foreign counterpart? To discuss thoroughly, the central bank, Bangko Sentral ng Pilipinas (BSP) claims that the country’s currency depreciation is caused by the strengthening of dollar rather than our sinking peso.

When peso depreciates, it means that more money and more Philippine peso must be exchanged for each dollars generated.

That is why those who rely on remittances from overseas, such as migrant Filipino workers who earn money in foreign currencies, profit when the peso falls in value against dollars since they receive more pesos for every dollars transferred to them from other countries.

Exchange rates

Currently, the exchange rate between the Philippines and US dollar is at high at 55.64 pesos. For the third straight trading, Philippine peso is seen to be dropping to weaker peso in value versus the US dollar, which was the record low in more than four months.

The local currency depreciated seven centavos from a close of Php 56.14 per 1 dollar to settle at Php 56.21 . This is the peso’s worst performing currency since it ended at Php 56.22 per dollar last December 1, 2022.

Surprisingly, there are two international financial institutes that has predicted that the Philippine peso will likely to devalue more for a third straight year in 2023, reaching the level of 57 once more, as reported two months ago.

The present currency depreciation occurred after the US Federal Reserve increased its benchmark rate by 75 basis points in a massive effort to hoover up all the extra money in circulation,

Recent reports has been circulating on peso’s depreciation that frequently uses the terms “weakening peso” or “falling peso,” and they also emphasizes the trend in the current peso-dollar exchange rate by using terminologies like “all-time low” or “new record-low.”

However, the use of words like these could send the wrong message, which might also account for why some Filipinos would be alarmed by the present exchange rates between the Philippine peso and the US dollar.

As peso depreciation continues, one question arises: Should Filipinos be concerned? With this current exchange rate of currency, possibly, what are the effects of peso inflation and effects of peso depreciation in overseas Filipino workers?

Peso depreciation’s benefactors

When it comes to local currency devaluation, there are winners or gainers as well as losers to which ever ways the peso goes.

Workers in export industries, also receive more pesos for their foreign currency revenues; are also a benefactors when peso depreciates. These include those who work in the agriculture sector, which accounts for a sizable portion of agricultural products of the nation’s exports , as well as those in the electronics export sector, which is claimed to be the nation’s top export.

In terms of exports and imports, when peso devaluate, it lowers the price of our exports and makes foreign companies more interested in purchasing our products, while our exporter sees a gain in peso revenues from their sales.

For an instance, when the peso falls in value, prices of domestic products and services of our country becomes more affordable to foreigners when peso depreciation occurs.

In contrary when the peso increases in value, Filipino goods and services become more expensive with higher prices, while international or imported goods becomes less expensive for us Filipinos when peso appreciates.

Agricultural sectors also benefited when peso depreciation occurs. Many farmers will gain from the higher peso worth of their exporting produce. Manufacturers of agricultural products will reap the benefits and will make more money, especially if their import content is not too high. 

Another immediate benefactor in this arrangement of foreign exchange is the tourism sector. More foreign tourists are drawn to visit the Philippines as the country’s goods and services grow more affordable and appealing to foreign tourists, as they have this assurance that their currencies will go a long way here in our country, particularly the US dollar with the current status of foreign currency exchange rates here in the Philippines.

The losers when peso falls in value would be the importers and consumers of imported goods. Importers and consumers of imported goods, would suffer from the peso’s devaluation as chances of rising prices would occur as the peso cost of each dollar of imports skyrocketed.

Producers who rely on imported inputs will also suffer greater expenses. Which gies to show that everyone could be affected by the economic crisis and rising prices of commodities, including OFW families.

The government itself also would be particularly affected by the weakening peso since it will need more money to make repayments on its foreign debt. With these present foreign exchange rates and on-going peso depreciation, question would arise as to how the peso strength affects OFWs with a foreign debt and their investments in the Philippines?

Effects of peso depreciation in overseas Filipino Workers

The Philippines is one of the world’s greatest remittance recipients, with over millions of Filipinos working overseas.

Millions of Filipinos working overseas are reaping the benefits from the depreciation of the Philippine peso since it allows them to send greater sums of their earnings back at home.

Filipino migrant workers (OFWs) who receive their pay in dollars are extremely pleased about the growing US currency. Their families who receive dollar remittances enjoy a larger take-home pay since they get a lot more in pesos for the same value of dollars.

On the brighter side, overseas Filipinos working abroad are regarded as economic heroes for their substantial contributions to economic growth of Philippine economy.

According to a report by the Philippine Statistics Authority (PSA) last December 2022, the estimated number of migrant Filipino employees or Filipino employees who worked overseas between April and September 2021 was 1.83 million.

The economic heroes, the OFWs are the one credited for the increase in the amount of remittances sent back home. Consequently, the Philippines has been seeing an evident surge in remittance inflows.

Higher cost of goods and services

When peso depreciates, the buying power of Filipinos weakens. Traveling locally or abroad gets more expensive. Every transaction will increase in price, including plane tickets, meals, and accommodations.

This boils down to higher import prices and overall inflation that if it progresses, it will be called as stagflation, or the consistent sluggish growth due to inflation.

How the peso strength affects OFWs with their investments in the Philippines?

Exporters that sell their products in dollars benefit from the peso’s decline. On the other hand, this spells trouble for importers, though, as more pesos are now required to purchase the same quantity of products in dollars.

If the importation of commodities and raw materials proceeds at a higher cost, this would eventually fall down to the consumers. As a result, it increases the prices of the goods and services we buy and accelerates inflation.

When it comes to investment in real estate properties, a weak local currency may also lead to higher interest rates and faster inflation. Consequently, investor’s mortgage payments will be higher, and their borrowing costs will be higher as well. This thus reduces the demand for loans and real estate investment in general. 

Exchange rates also have a significant impact on overseas real estate investors. In reality, this fluctuation of higher exchange rates has a significant impact on the amount of foreign investors who enter the market.

Dollar investors now have more purchasing power as the value of the dollar compared to the Ph peso rises. This allows them to have more capital to use as investments in the local real estate market.

Why should you care about currency exchange rates?

Regardless if you are an overseas Filipino worker (OFW), working in any foreign countries or a local laborer, currency exchange rates affects everyone.

The exchange rate is crucial because it connects our local currency to the overseas market, where we accumulate goods, services, and assets in different currencies. Therefore, an increase or decrease in these rates could have a knock-on effect on our household expenses and investment choices.

It is important that we get ourselves accustomed with the currency exchange rates as a member of the affected country. When the peso falls in value, we need more money to import the same number of items. Consequently, the goods we import are also more expensive when they reach our country.

Foreign investors’ hesitation in investing

Given that things are becoming more and more expensive on a global scale, investors may become hesitant. This would encourage people to consider real estate as a more reliable investment choice. 

One practical way for someone to save money in the face of this ongoing inflation is through condo investments. Due to the dependence of the construction sector on gas, the price of real estate properties would probably increase in the upcoming years. 

This answer as to why real estate investment is a wiser decision to make in times of economic crisis like this peso inflation because the value of real estate properties appreciates or increases as time passes by. Worry no more because we’ve got you covered. Asterra is here to help in your every step.

So investing in Asterra real estate properties would be the wise choice you could make because Asterra offers affordable real estate and land packages that would satisfy the investor’s housing needs.

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