Author Topic: The USD and Peso Relationship in Recent History - Observations  (Read 7926 times)

Offline rainymike

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The USD and Peso Relationship in Recent History - Observations
« on: December 29, 2007, 05:42:07 PM »
Perhaps the greatest concern to those planning to retire in the Philippines is the value of the dollar in relation to the peso. On my very first visit to the RP, a dollar was worth about 55 pesos, and that was when I decided to retire there. Since then it\'s dropped to about 41 pesos, and I\'ve had to readjust my retirement plans and date accordingly. Here\'s what I\'ve been able to gather about the dollar to peso relationship historically for you to think about in your retirement plans.

Historical Trend:

1950: 1:2.00†  (the value of the peso was fixed to the dollar at a $1:2P rate. many thought the peso overvalued.)
1955: 1:2.00
1960: 1:2.01†  (the government decided to allow the peso to float in the world market. it was supposed to happen gradually over† †
† † † † † † † † † †  several years)
1965: 1:3.91†  (the value of the peso dropped significantly. this action helped RP export industries, but caused economic chaos for†
† † † † † † † † † †  many Filipinos as the value of the dollar almost doubled against the peso in a year)
1970: 1:5.90†  (the value of the peso took another dive following Marcos\' reelection. the dollar rose 50% against the peso in a year).
1975: 1:7.25†  (the value of the peso stabilizes somewhat during a period that sees martial law declared)
1980: 1:7.51†  (continued Marcos rule)
1985: 1:18.61 (another period of political instability following Aquino\'s assassination and an economic recession. the value of the dollar
† † † † † † † † † †  rises over 100% against the peso)
1990: 1:24.31 (Marcos is ousted in 1986, and the peso begins to stabilize again. In 10 years the value of the dollar tripled against the
† † † † † † † † † †  peso - 1980-90)
1995: 1:25.71 (a relatively stable peso, economic reforms continue)
2000: 1:44.19 (in 1997 the Asian financial crisis sees Asian stock markets crash in many Asian countries. The peso drops in value
† † † † † † † † † †  significantly. Estrada is elected president, then impeached. A period of marked political and economic instability. The
† † † † † † † † † †  value of the dollar begins to climb rapidly)
2005: 1:55.09 (the dollar peaks at about 1:56 and begins a gradual decline. Arroyo becomes president in 2001 and begins a period of
† † † † † † † † † †  major economic reform)
2007: 1:41.25 (a weak US dollar and strong RP economic performance sees the value of the dollar decline significantly)

Observations: from 1950 to 2000 the value of the peso was very unstable, reflecting the economic and political instability within the Philippines. Sometimes the value of the dollar almost doubled against the peso in a year\'s time during periods of great instability. The RP seems to have entered an era of economic stability and is regaining lost ground).

What About the Future?

Well economics is a lot of hocus pocus and your guess is good as mine. But judging from how other Asian countries have fared since 1997 (the asian financial crisis), the peso has the potential to get much stronger. In 1997, almost all Asian currencies fell against the dollar, some more than others. Since then the currencies of countries like Japan, Singapore and Thailand have returned to 1997 levels. Countries with weaker economies are recovering more slowly. But if the peso returns to its 1997 values like the yen, we should be seeing a 1:30 currency exchange rate.

Will that happen? I don\'t know, but it\'s a possibility that I will plan my retirement around. Originally, I had planned to purchase my \'dream\' property with a 5-6 year mortgage. Since then I\'ve changed my mind for two reasons. First, it ties up my entire nest egg in property and gives me no wiggle room. Second, if the peso continues to† strengthen it would make it difficult for me to pay off my mortgage with my pension. So, I\'m playing it more conservatively, opting for less expensive property and looking for ways to generate pesos for me in the future and not just living off my pension.

Hope this helps some of you considering retirement and wondering where the USD:Peso relationship goes. This represents just my observations and opinions and not necessarily reality. If anything, the history of the Philippines says, be prepared for big economic surprises anytime and anyplace.

Offline Manila Cockney

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #1 on: January 05, 2008, 12:43:53 PM »
An important factor between 1990 and 1997, is that the Central Bank, in line with other Central Banks in the region was controlling the rate to a basket of currencies, heavily weighted on the US Dollar. During August 1990, the rate was 25 and at June 1997 it was just over 26. At the time the peso, similar to Thai Baht, Indonesian Rupee and South Korean Won was clearly overvalued. The speculators saw this and in July 1997, hit† the peso, by end of 1997 the peso was 39.975.† Since then the peso has been free floating with some government exchange controls.

The difference now is the peso for the first time has significantly shifted the other way. Its not only caused by the dollar weakness by the peso strengthening against all currencies (peso in 2007) was one of the strongest if not strongest performing Asian currency at 15.7%.

If you think the peso is going to continue its rise, and you have the funds do the simple thing and buy your pesos now. Worried about keeping too much in a Philippine Bank account when insurance is only 250,000 pesos, spread it between banks, or deposit it in Citibank or HSBC where the deposits are guaranteed by the US and Hong Kong bank respectively. This though is an emerging market and it does not take much for the peso to fall very quickly.† Election due in 2010!

Offline rainymike

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #2 on: January 23, 2008, 07:18:40 AM »
Well, with fears of a recession in the US, it seems that stock markets are being adversely affected around the world. Kind of like a repeat of the Asian Financial Crisis in the 90\'s, except this time, its an American Financial Crisis.

I noticed that the stock market in the Philippines has been taking a hit and that pesos were being sold for dollars (I guess between a weak dollar and weak Philippine stocks, the dollar is the lesser of the evils?). Any sense from those of you who are watching these things more carefully than I am -- do you see this pattern stabilizing the peso-dollar relationship into the foreseeable future (despite the continued economic problems in the US)? Opinions?




Offline rainymike

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #4 on: January 29, 2008, 09:59:50 AM »
How will the Asean Group becoming more active effect the RP Peso and other Asian currencies within the group?

Will a increase in import/export within the group make for stronger local Asian currencies regardless of what the major currencies does?

Is this something to look at when trying to get more bang for the buck with the exchange? ie buying other Asian currencies then the† RP pesos with foreign monies to exchange too RP pesos?

Personally, we are locked into generating RP Pesos with few U.S. dollars left. Therefore, the exchange isn\'t effecting us but, raising prices are and way ahead of the game so far, but who knows what the next 3 years will bring?†
B-Ray

Offline pidgieboy

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #5 on: February 13, 2008, 11:44:13 AM »
This topic is very relevant to ex-pats, as most rely on fixed pensions from overseas.
If the peso continues to rise against the major currencies... then most ex-pats will suffer a decline in purchasing power. In fact they already have, and some experts are forecasting more strengthening of the peso? Perhaps from the present $1 to P41 down to 1:35.
But is this really likely?
Permit me to invent an ex-pat called \'Tex\'.. who arrived from Houston just 2 years ago. He brought with him one million dollars and converted to pesos,
(exchange rate then 1:56) so he got P56 million pesos. Tex deposited all this with good local banks, putting it into term deposits. Since then he has lived off the interest paid to him by the banks.
However a month ago he saw an opportunity....he cashed in his term deposits and transfered the lot back to Houston. †A week later he phoned his bank manager and was told the transfer had been completed... and $1.36 million had been credited to his account. Now his gain ($.36M) is due solely to the exchange rate going down to 1:41.
The point of this hypothetical is to show that many foreign investors may be thinking along the same lines as Tex?
Remember the peso has risen against virtually all foreign currencies.
Basically the rising peso will tempt many investors to think about getting out. Of course some can\'t... because their assets are not as liquid as Tex\'s. But thousands can follow his lead. This creates an outflow of capital and puts downward pressure on the peso. Moreover the central bank in RP is cutting the official interest rate. This will flow on into all interest rates, including rates paid to bank depositors. Rex anticipated this too.
In a worse case scenario this is called a \'flight of capital\' and the currency would crash. But the peso will not crash, just gently stagger back, and fall back against the dollar... happy days.
This outcome would benefit countless thousands of Pinoy families who rely on remittances from OFW relatives. Some say these remittances account for 10% of national economic activitity.
My prediction (outflow of capital) is more likely to occur if the Philippines follows the United States into recession, which is very much on the cards.
One poster quipped that economics is a lot of \'hocus pocus\', and I agree, but this is just my two cents worth.

Malcolm H. (pidgieboy)







malc h.

Offline fred

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #6 on: February 13, 2008, 12:05:06 PM »
Quote
he cashed in his term deposits and transfered the lot back to Houston.

I really don\'t blame him but how much did it really cost him to buy all of those $$ back? That must reduce his profits a little surly?
I doubt many from the US would have had his foresight in changing the $$`s† in the first place,especially with the advice most U.S ex pats would have given back then in regards Philippine banks deposits etc.
No one that I can remember were predicting a stronger PHP back then either come to think of it.
The stock markets have dropped horribly over the last few weeks alone and with many,the fundamentals have hardly changed..This will provide some brave investors the chance to pick up some very very cheap stock and to make record profits on the recovery..
The problem is trying to decide when to catch a falling knife?
Hindsight is a wonderful thing.

Offline michael16136

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #7 on: February 13, 2008, 07:46:32 PM »
I think the \"economic stability\" here has much less to do with the president, who allows massive corruption to run unchecked, and much more to do with the ever growing flood of workers fleeing poverty here and working overseas, then sending hard currency back. That\'s where most of the foreign exchange surplus comes from, and it\'s the only thing standing between the local economy and disaster. If the world slides into recession, and labor markets start to shrink in the employing countries, then the economy here is going to fold like a house of cards on a shaky table.

Offline rainymike

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #8 on: February 28, 2008, 02:04:30 AM »
Quote
Hindsight is a wonderful thing.

Hehe, yup, when it comes to economics, we\'re all experts in hindsight. But given how the peso and dollar has done a lot of yoyo ups and downs over the last decade, it probably makes sense to understand what you\'re getting yourself into if you plan to retire in the phils.

But I\'m not discouraged by the recent trends over the past year or so. Looks like the Phils is still a better bet for me even if the dollar remains weak for a while. But I am definitely planning more conservatively now and making sure that I don\'t overextend myself until I get a much better understanding of the Philippines economy.


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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #9 on: June 10, 2008, 12:01:56 PM »
Words well spoken, it take pesos to live here and the exchange rate is a factor! Unless you convert from whatever to pesos for the long haul.

Now that is a guess-by-golly thingie to do, depending on your view of what might happen in a short, (year?), time. ???
B-Ray



Quote
Hindsight is a wonderful thing.

Hehe, yup, when it comes to economics, we\'re all experts in hindsight. But given how the peso and dollar has done a lot of yoyo ups and downs over the last decade, it probably makes sense to understand what you\'re getting yourself into if you plan to retire in the phils.

But I\'m not discouraged by the recent trends over the past year or so. Looks like the Phils is still a better bet for me even if the dollar remains weak for a while. But I am definitely planning more conservatively now and making sure that I don\'t overextend myself until I get a much better understanding of the Philippines economy.



Offline stillbilly2002

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #10 on: June 10, 2008, 11:11:27 PM »
IM observing that everyone needs to stay in the usa or uk.....if we cant afford to live in the RP
 income wise ......its time to stop worring and think of somewhere else.......vietnam comes
 to mind where its cheaper......some of us are retiring to the RP because our money goes farther......
† †  thats it!!!!! we must accept everything else or go back home...we control nothing........
 get that in your head ......if you question this† you better rethink.....check yourself...billy2002

Offline stillbilly2002

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #11 on: June 10, 2008, 11:22:48 PM »
 ;D† †  trying to understand† the RP economy??????† im not trying to insult you,you sure have set the bar high................your trying to be all you can be................ ;D ;D ;D billy2002

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #12 on: June 11, 2008, 09:35:11 AM »
Don\'t know who or what your responding too since you didn\'t \"QUOTE\" Billy.

Most of us that\'s been living in the Philippines for some years, no longer know what it is now like, in regards to cost, to live in where we came from. Memory is a has-been thingie from my POV.
B-Ray†

;D† †  trying to understand† the RP economy??????† im not trying to insult you,you sure have set the bar high................your trying to be all you can be................ ;D ;D ;D billy2002

Offline BenK

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #13 on: June 11, 2008, 09:55:25 PM »
I think the \"economic stability\" here has much less to do with the president, who allows massive corruption to run unchecked, and much more to do with the ever growing flood of workers fleeing poverty here and working overseas, then sending hard currency back. That\'s where most of the foreign exchange surplus comes from, and it\'s the only thing standing between the local economy and disaster. If the world slides into recession, and labor markets start to shrink in the employing countries, then the economy here is going to fold like a house of cards on a shaky table.

There was a very interesting article I read the other day that detailed the drastic decline in overseas postings for Pinoy nurses, something on the order of 40 to 50 percent drop in job openings in just one year. You make a very good observation, one that I wrote about last year and then got in an argument with Manolo Quezon over the impact of OFW money. His contention was that far more foreign currency was brought in by corporate investment, but even if he\'s right (which he\'s not), the same conditions still apply. Recession overseas means capital no longer spreads out to foreign countries, so for the Philippines it\'s a potential double whammy. The upside for us is that our money will go farther, provided the drop in currency value outpaces inflation, which it is so far.
That\'s not chicken.

Offline Beatle

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Re: The USD and Peso Relationship in Recent History - Observations
« Reply #14 on: June 12, 2008, 12:49:34 AM »


†  This is really for everyone that is living in the Philippines,

† † I live in the Dallas/Ft.Worth metroplex and have plans to move to the Philippines in 8 months.† In the past 6 months the price of gas has almost doubled, the price of some food has almost doubled and some food has more than doubled. Anything that has to be hauled by a truck ( which is everything ) has gone up in price by at least 30%.† So, if you are thinking about moving back to the USA you had better think twice about that decision, unless you already own a farm and plan on growing all you own food and you work from home to make an income so you don\'t have to drive to work everyday. I am not being a doomsdayer but this is just the beginning of rising prices and shortages IMHO. :( :( :(

† † †  Ray
If you treat a servant like a servant, you will lead a alone. But if you treat a servant like a leader, multitudes will follow.† Beatle

 


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