THE diminishing value of the Philippine peso versus the US dollar and other currencies has again bubbled to the top of the stew of public conversation in the past week. Driven partly by misunderstanding of the topic and partly by irresponsible politicizing of the issue by some parties, the focus on the “weak peso” is causing some to worry that the country is experiencing some form of economic crisis.
It is not. The value of the country’s currency is obviously not a matter that can be wholly disregarded, but we are obliged to point out – and not for the first time – that the present state of the peso is not nearly as fragile or dangerous to the Philippines’ well-being as it may seem.
As of June 19, the peso-dollar exchange rate stood at P53.458 to $1, which represents a decline of 6.55 percent since the beginning of this year, and a drop of about 1.7 percent since the beginning of the month.
The recent decline of the peso combined with the sustained period of higher inflation since the beginning of the year has caused enough concern that a few so-called opposition politicians have called for the Senate to “investigate” the matter. To what end the proposed inquiry would proceed we can scarcely imagine, unless we can take the call at face value as a feeble attempt to blame government economic policy for the “hardships” being imposed by a weaker currency.
Whether concerns about the falling peso are sincere or merely opportunistic political grandstanding, they would benefit from a bit of perspective. The peso’s recent performance is hardly extreme. Between February 2004, when the peso closed at an all-time low of P56.35 to $1, and January 2008, when the Philippines along with the rest of the world was grappling with the global financial crisis, the peso appreciated in value by 27 percent – in other words, a pace of change in a positive direction roughly approximating the pace of its recent decline. Between January and October 2008, the peso reversed itself, declining by about 20 percent during that period, then bouncing back to gain about 16 percent by February 2013. Between February 2013 and the presidential election in May 2016, the peso went the other direction again, depreciating by about 15 percent.
Significant changes in the peso’s value over time are therefore entirely normal. What the country is experiencing now is not unusual, and while it is admittedly not without short-term consequences for some – though an equal advantage for others – it is very unlikely that any special action on the part of the government or the BSP will be required to push the peso into an eventual upswing in value.
Because the BSP maintains a hands-off policy with regard to the peso’s exchange rate except for small-scale market interventions to prevent large daily changes, the peso’s value is driven more by external factors than by the Philippines’ own monetary policies. For the past few months, the forex markets have been affected by higher oil prices, growing uncertainty over the US government’s aggressively protectionist trade policies, and the prospects of tighter monetary policy in the US and other major economies.
That being the case, any strong move by the BSP to manipulate the peso’s value would be counterproductive. It might lead to a short-term gain, but would signal a lack of confidence in the economy that would depress the peso even more over a longer term. Thailand in 1997 and Indonesia in 2013, both of whose currencies plummeted in value after strong central bank interventions, are very good examples of what can go wrong when misguided calls to “do something” are heeded. Our policymakers should not make the same mistake.