Recently I was asked about the weak peso against the dollar. The economist in me jolts in joy, knowing that I can have the platform to share the concepts behind the exchange rate.
Back in the university, as a student and later as a professor, we pay particular attention to the dollar-peso exchange, its movement, and possible impacts.
Interestingly, some were looking at the weakening of the peso, as they call it, as something to worry about. In the parlance of economics, we call it devaluation, and when peso-dollar exchange improves for the peso, we call it revaluation.
When the peso devalues, its impact is that we will need more supply of money to buy a basket of goods, my most recent figure is Php58 for one dollar.
In effect, we will need more pesos to pay other countries for the imported products we consume, and we will pay more for the fuel we import.
Expectedly local prices are expected to shoot up. We call this inflation. And for that matter, cost-push inflation, or that rising prices due to increasing cost of materials. Let us not forget that we are also paying our national debt in dollars. This is a leakage from the domestic economy.
On the other hand, we see the benefits of a weak peso to the households whose members are in the BPOs that are oriented to the US economy. Families of OFWs experience higher purchasing power for the remittance they receive.
The export products are now seen as more attractive in the global market owing to being cheaper compared to before.
However, let us not mistake the devaluation as an effect on our economic performance. We are in a better position than other countries amidst the buy-back of dollars.
The peso weakened due to the US policy to fight off their local inflation, temper the domestic interest rates, and pay off their debts.
In today’s global market, lenders see the prospect of more significant returns for their dollars if they buy the security instruments of the US government, such as bonds.
Dollars are going to the US economy, and the rest of the world is faced with a lower volume of dollars, and since they have an enormous supply of local currency, devaluation occurs.
There are instances in history when devaluation has been used as an economic strategy.
The Japanese economy devalued its currency, the yen, against the dollar in support of its turbo production of export goods, including automobiles, electronics, and gadgets. When these products are sold in the market, the products achieve a competitive advantage in terms of price and quality.
Germany did the same.
The country changed its export patterns by producing agricultural tools and equipment, devaluing its currency, and earning revenues to fund its economic recovery. And look, the Japanese and German economies grew to become the third and fourth largest economies after a significant contraction eight decades ago.
My point here is that when we aim to produce a trade surplus, more exports than imports, then we get the benefit of the momentary monetary debacle of the US. The number economy of the world is expected to rebound the soonest. We have to prepare for that.
We can improve our export position by supporting local players and domestic entrepreneurs. During this period of the weak peso, better to repurpose the purchase of local products and develop import-substitution technology leading to the value-creation of local products.
Simply saying, let us patronize local products.
Local firms will be happy to know of a forecasted broad consumer base. It signals scale production and windfall revenue to hire more workers and buy more local domestic ingredients.
In a Mindanao Forum held online yesterday, the President of the Philippine Economics Society, Dr. Charlotte Justine Diokno-Sicat, revealed that the country is in a better position amidst this “weakening of the peso against the dollar.”
It brings me to the belief that since we are generally insulated during this time, this is our chance to bring forward our advantages. To do this, let us make the 25.6 million Mindanawons consumers of our products.
Let us spend on local products. After all, if the local entrepreneurs can take advantage of the changing exchange market to our advantage, the country is sure to benefit; this is patriotism at its best.
[Adrian Tamayo is the head of the Public Relations Division of the Mindanao Development Authority (MinDA). He teaches economics at the Graduate School of the University of Mindanao and currently on a scholarship grant for a Master of Public Safety Administration (MPSA) at the Philippine Public Safety College (PPSC).]
