Some two decades ago the Philippine peso depreciated from the mid 40 to $1 to the mid 50 to the dollar in less than 12 months. One of our local prominent business leaders made a public prediction that we would see the peso depreciate perhaps to as high as 100 to the dollar.
It is difficult to argue with a multibillionaire. However, the exchange rate never breached the 58 level. The other factor to consider was that one of the more important business interests of this taipan generated revenues in dollars and the bulk of its expenses were in pesos. His company would have greatly profited from a P100:$1 exchange rate.
In 2018, as the peso was moving from 50 to 52, there was absolutely certainty from some quarters that an exchange rate of 58 was inevitable. Once again, the peso failed to live up to the negative forecast.
Even when the peso depreciated by 3.9 percent this past August, more voices of impending doom hit the press and media. Since then, the peso has appreciated by about 1.4 percent.
The Philippine peso holds a unique position in the currency markets for two reasons. The first is that the Bangko Sentral ng Pilipinas has followed a firm policy for decades of not interfering in the exchange rate of the peso. Other central banks believe that intervening in the exchange rate is the only reason for their existence. Here, the BSP may come into the foreign exchange market if there is a great short-term imbalance between peso buyers and sellers, not to set a price but to provide liquidity and reduce volatility.
The second reason is that—because of that Central Bank policy—currency speculators are very hesitant to test the BSP especially with its foreign currency reserves of $80 billion. South Korea, Thailand, Malaysia and Indonesia have all been hit with currency speculators in the past.
Foreign currency traders know that it is a fool’s game to go against the market. So they wait to see a central bank artificially move the currency in one direction or another, and then they pounce like a lion on a wounded gazelle.
Despite all the howling about the peso, the net year-to-date change against the US dollar is a negligible appreciation of 0.77 percent. By comparison, the Korean won is down almost 7 percent and the Thai baht is up almost 6 percent. Interestingly also is that the peso is down against the Japanese yen for the year by 0.77 percent. For an economy, currency stability is critical and the Philippine peso has that stability.
A market-driven currency exchange rate is influenced only by money coming in and money going out. While the headlines capture short-term factors like last month’s remittances or this quarter’s “hot money” leaving, it’s only the bigger picture and trend that are important.
While the Current Account has been in a deficit trend since the last quarter of 2018, the overall money flow is in balance between going out and coming in. You can always argue about the accuracy of government data, but you cannot argue with the markets.
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Image credits: Jimbo Albano
The 1980s classic UK political sit-com series “Yes, Prime Minister” contained a joke, famously defining the nation by British newspaper readerships.
I often wonder why there seems to be a boom in the naming of girls with typically boys’ names. Women like Alex, George, Shannon, and Austin have been growing in numbers! Even American celebrities Ryan Reynolds and Blake Lively have named their daughter James, as did Ashton Kutcher and Mila Kunis who called theirs Wyatt. Parents of baby girls from the recent decade seem to have gone a “generational shift”—they do not call their sons Sarah or Maria; they name their daughters Robin as demonstrated by statistics from government data in the United States.
I had the occasion to look at the trends in the Philippines’ Certified Public Accountants (CPA) licensure examinations and its counterparts in other countries.
