Dollar vs. Peso: 2022’s biggest showdown
The peso needs serious help. (Photo: BusinessWorld)
I recently squared up against COVID-19 after it finally got to me ever since its world debut more than two years ago. It made me feel so weak and helpless. Much like how the Philippine peso is doing right now.
It's all downhill from here
As most of you know by now, the Philippine peso is having a rough go at the moment, having fallen to an all-time low value compared to the US dollar.
Data from the Bankers Association of the Philippines revealed that the local currency is trading between P58.72 and P59. Once upon a time (the end of 2021, to be exact), it used to be just P51. This means that the peso has depreciated by a total of P8 or 15.7% in just 10 months.
The volatile nature of global crude oil prices are mostly to blame for the massive peso downgrade. And to rub more salt on the wound, ING Groep NV and Bank of the Philippine Islands analysts claim that the peso can drop as low as P60 to P62 against the dollar before the end of 2022—yes, that soon.
It’s not looking good. Anyone in the Philippines thinking about going on vacation in the US is probably doubting their chances of shopping anywhere else but the dollar store.
What can we buy right now?
Technically speaking, that one dollar my parents gave me as a kid now has more value. So all I need to do is look for my Spongebob velcro wallet and cash out. Good news, right?
National Statistician and PSA chief Claire Dennis Mapa explained that even if the purchasing power of the peso is not computed based on the US dollar’s value, the lingering presence of inflation could still cause some complications.
“Strong dollar versus the peso has an impact on the items in the consumer price index,” Mapa said. Foreign commodities such as petroleum are still bought with dollars, given that it’s the universal currency. The more expensive they get, the higher local pump prices go and the lower the chances of me getting a full tank with a smile on my face.
Rizal Commercial Banking Corporation chief economist Michael Ricafort further explained that imported oil, other commodities, and other products “became more expensive by nearly 12% since the start of 2022.” That’s already “much higher or more than double the average inflation of 4.9% from January to August 2022.”
Simply put, the lower the peso goes, the more we’ll need in order to buy imported commodities. And we import A LOT of stuff. It’s going to domino all the way down to the purchasing power of households. Just compare fast food prices nowadays to the cheeseburgers of before.
The peso is weak
Mapa did say that the purchasing power of OFWs will improve but only on a slight and temporary basis. Data from the Bangko Sentral ng Pilipinas showed that June cash remittances stood at $2.755 billion, which is 4.4% higher than the $2.638 billion during the same month of last year.
It was also revealed that year-to-date personal remittances amounted to $17.086 billion. This is a 2.8% increase from the $16.616 billion exchanged during the first two quarters of 2021. There is more money going around but prices aren’t what they used to be.
The new exchange rate for dollar to peso is amazing news if we just look at it on a surface level. OFWs can now receive more in local value—it’s like they received a raise without having to wrestle with their superiors.
But again, inflation is the universe’s strongest killjoy. A higher exchange rate won’t mean anything if everything else that needs to be purchased has gotten pricier as well. There’s truly no winning in this situation.
It certainly doesn’t help that government officials have gone on record saying that people shouldn’t sweat it. The most recent and probably one of the most famous examples is a comment from Ilocos Norte 1st district Representative Sandro Marcos when he said, “The peso is not weak because the peso is weak. The peso is weak because the dollar is strong.”
There is truth to this statement. The strong dollar truly is compounding the weakness of the peso. But the peso is not simply weak because the dollar is strong, the peso is fundamentally weak because the Philippines is so heavily dependent on imports while our exports aren’t able to catch up.
Imagine telling the store that your money is not enough because you don’t have enough. Your money is not enough because the price of the product is too high. If that were the case, I wouldn’t be here writing about economic tea that sucks.
