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Dollar’s Decline
“The American dollar had a great fall.. and all the king’s horses and all the king’s men, could not put the American dollar together again.”
It' certainly seems like it as the successive interest cuts by the Fed are not doing much in boosting confidence for the US economy. Unless meaningful changes are instituted to heal the trade deficit (more imports than exports) and federal deficit (more government spending than government profit) of the United States, currency values will continue to fluctuate and the markets will remain volatile.
After adjusting to the massive fall of the peso 10 years ago wherein it’s value declined from P25/1$ to more than P50/$1, it seems that we are again in for a currency roller coaster ride as the Dollar loses its value yet again because of the twin deficits of the US economy (Trade and Federal). From a peak of P56 per dollar three years ago to today’s P39 per dollar, many of us Filipinos (especially those with dollar dependent salaries) are wondering what the future has in store.
What exactly does a lower dollar mean for us?
1. Lower Remittances: Perhaps the fall of the dollar is most obvious to families dependent on remittances from abroad. Whereas before where a $1,000 remittance could mean P55,000, the same amount translates to only about P40,000 in today’s exchange rate. This is a P15,000 loss from the value of the dollar from 2 years ago!
2. Bad for Dollar Based Salaries: Dollar based salaries like those in call centers and medical transcription offices will also feel the crunch of the plunging dollar. After all, the currency exchange rate will start eating into the profit margins of these businesses. This could mean retrenchments and less pay raises for this year and perhaps even next year (depending on how the US economy performs)
3. Bad for Exports, Good for Imports: A weaker dollar means imports becomes much cheaper and thus foreign made products becomes a lot more competitive in our market. This should mean that consumer electronics, the price of oil, Swiss chocolates, and anything else foreign especially US made should become cheaper in the next few months. (the downside is, this does not seem to be happening as importers are still very happy with the sudden increase in their profits)
Moreover, exporters lose and this includes one of the primary exports of our country which is labor. Overseas Filipino Workers will be clamouring for wage increases (thus lowering the demand for Filipino labor) and our abaca, coconut, and other export products will cost more dollars to purchase and yup, this will include Philippine ebay products that locals sell through the internet.
4. Bad for US based Filipino Workers and Graduates planning to go Abroad. As the economic crunch hits the lower and middle class citizens of the US, US politicians promising their constituents more jobs and higher salaries, bad news is, there are only too much job openings in the US. This may result in Filipino workers there being sent home and their jobs given to US citizens.
5. Bad for Dollar Based Saving Accounts and Investments: Ouch! This one really hurts! After all, never in our wildest dreams did we expect the dollar’s value to come crashing down this quickly. As such, many Filipinos have invested in dollar savings accounts or stocks to protect themselves from the volatile peso. Now a $5,000 account is only worth P200,000 as opposed to last year’s P250,000. A P50,000 loss!
Some US politicians are saying that the lower dollar will actually be good for their economy as this will make US products a lot more competitive in the global market and thus generate much needed jobs in their homeland. As foreign corporations flock to the United States though to buy up suddenly cheap US businesses, I wonder how much of the United States will be left owned by American citizens after all of this is over?
Meanwhile, the Philippine government is touting the strengthened peso as proof of their success in boosting the economy. Hello! The peso increased in value because the US dollar’s value fell through the roof not because of your profound economic plans!
As the world becomes more globalized in terms of economy while the internet becomes a stronger business medium, I wonder how people in developed nations will fare in having to compete with the extremely cheap labor of developing countries? Globalization, after all is not just about products but services and while earning $1,000/month over there may put you below the poverty line, its certainly more than enough to live on comfortably over here. Would they have to lower their salary expectations in order to compete with us?
Capitalism, taken to its logical conclusion would tend to equalize the opportunities and benefits across borders. The only question is, will we become the capitalists or the hired work? For the short term though, I guess we’ll just have to contend with a medium to long term lower dollar value.
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