Almost everything in life is changing constantly, that shouldn’t be a big surprise. Very few things remain the same over the long term. One place where we American expats are seeing a lot of change lately is in the value of the US Dollar. The US Dollar, in the past few weeks, has been losing value against almost every world currency, and that includes the Peso.
I can remember the years when I was living in the States. We would hear on the news that the dollar was losing value, or was getting stronger against different world currencies. It would be on the news, and people would talk about it a bit – a “strong dollar” or a “weak dollar” – but in the end, if you live in the USA it doesn’t not have an immediate or huge affect on your life. Oh yes, if the Dollar sustains a long period of weakness, then you will start to see inflation in prices, overseas vacations will be more expensive, etc. If the Dollar has a sustained period of strength then you will find imported items cheaper, when you go overseas your dollar will stretch further, etc.
When you are an expat, though, living abroad, if your primary income remains in Dollars, when the dollar loses strength the affect is immediate. When the dollar goes down in value, you feel the squeeze that same day. It doesn’t take time for the affect to reach you.
In the past few weeks, the dollar has been taking a dive. It all started out when the dollar was actually showing strength. After a prolonged period of the dollar staying at a Peso value of roughtly 47.8 to 48.0, in a matter of just a couple of days, the dollar was suddenly nearing 49. But, just a couple of days later, the dollar dropped like a rock!
This past week, we actually had one day when during intra-day trading, the dollar breached the 46 level and was trading at 45.99. What a drop! As it is now, the Dollar/Peso rate is hanging around 46.5 or so.
All during this past few months, we have continually heard that the Dollar will by 52 Pesos or so by year’s end. Now, they are talking about the Dollar going below 45 by year’s end. Somehow, I feel the days of a 40:1 Dollar coming back – it wasn’t very long ago when we American expats were facing that value. 48 to 49 Pesos to a dollar has been a nice recovery. I’ve been hoping to see 50, and would have been happy with the dollar at 50 Pesos, but it is looking like that is not meant to be, at least not soon.
The thing is, the dollar is losing value all over the world. With US deficit spending totally out of control, it will likely continue to lose value in the foreseeable future too. I don’t think it is unreasonable to think that we’ll be seeing an exchange rate of 40:1 again. US spending is out of control, and that damages the value of the dollar.
So, here we are, back in the 45 to 46.5 realm again. There are no signs that the US Government has any intention of taking actions to retain (or regain) dollar strength. I think we are in for another round of expat belt tightening ahead. I find myself considering just pegging my pricing in Pesos and moving on with that. I mean, after all, I live in the Philippines, why should I continue to value my work in Dollars, when that is not the currency I am living on. It is something I will be considering, and making a decision on in the coming months, as I observe what the dollar is going to do.
What about you? If you are an expat already, do you still earn or receive dollar income? If you are hoping to become an expat, do you have a plan for dollar decline? Will you earn in Pesos or Dollars?
Morning Bob,
Yeah, I remember the article you did when the dollar was strong and the Aussie dollar was very weak. I think this was around 10 months or so ago. Our dollar (once colloquially named the "pacific peso" after a big crash in 1986 or thereabouts), plumbed some real depths again approx 10 mmonths ago after being quite strong immediately before that. Well, it is back to where it was before that weakness and, again, some are speculating it may approach parity with the USD. Must make it hard for expats given the way prices for basic items in Davao has gone throught the roof in recent years.
Hi Lee – Yes, I remember our conversation at that time too! Well, as the title of this article says, currency rates are a state of constant change. I hope that our dollar doesn't slide too far, but I fear that we are in for a period of lower value. It could still turn around and go back up, or it could stay the same, but I think we are looking at a slide…
If i were in your position i would ditch the dollar. The drunken sailors running the U.S economy seem to have done their best to doom it. The day is coming when it will no longer be the world's reserve currency. When that happens the dollar's slide will be deep and prolonged. Woe be unto those rats who are the last to leave the sinking ship USS Dollar.
Hi Bob,
Yes, it's a worry, isn't it? Every country I've ever lived in, I've deliberately earned in the same currency I've been spending, despite having the option to negotiate my salary in either GBP or local currency. I did this just to avoid sudden changes in my monthly income caused by factors outside my control. Had I been in a position where I was sending money back to the UK, I'd possibly have done it differently, but mostly I was saving or spending in local currency.
I can see the greater complexity of your situation though, when a large percentage of your income is earned from abroad; it's a difficult decision, for sure. Personally, I'd lean towards pricing in Peso's, possibly giving yourself greater revenue stability and passing the exchange variations to the customers. This would also be more relevant to customers from other countries who do not deal in US currency but in having some connection with the Philippines will certainly be aware of the Peso exchange rate to their currency.
I imagine that with some of the newer local services you are offering now, a greater percentage of your income will be in Peso's now too? (All the more confusing for tax purposes too, no doubt)! Certainly I'd be interested to see how you play things, and what effect it has. Good luck anyway.
Jim
Before Medicare Part D I drove to Canada every 3 months to buy my meds and the X-wife cancer meds. We felt like the king and queen. Our dollar bought so much. Then Bush took over and with his tax cuts and Iraq war the folks in Canada now come to Michigan to buy the cheap stuff. How far will the dollar slide? More than I want to see. Still can live better in the Philippines than in the US. A trip to Guam once a year may be needed for health care. I will wait and see. Medicare is almost gone. A trip to Guam may not be needed after all.
kamusta bob
i also remember this topic coming up a few months ago.although im not an expat yet the exchange rate does still apply to me as well.were still supporting the family in philippines even though my wife is here with me in usa.couldent you just exchange usd for peso when te value of the dollar is high.kinda like stocks in the market.i do think your idea of charging for your servises would be better if you were paid in peso.although it could backfire if the usd value increses.hmmmmmmm tough call my friend. interesting article.
salamat my friend
The value of the dollar is affecting those of us planning on traveling to the Philippines for extended stays too…I'm getting married in the Philippines in late January and plan to stay 2 months (mid-Dec to mid-Feb). Well, I now see that I need to transfer our wedding budget to my bride's bank account in the Philippines within the week or I will probably face a real loss. Weddings are a big expenditure anywhere and, though they are a value in the Phils, I still can't stand the thought of having to go cheap on anything for this special day because of currency devaluation.
The reasons for this collapse are obvious. The US economy is headed into the dumpster for a long time. These deficits guarantee it…probably for a generation, at least. And that assumes that more damage isn't done in the mean time.
So, word the the wise…it should be obvious that the dollar, right now, is about as high as we will see in a long time. If you are doing anything that requires converting to a foreign currency, I would do it right now.
I remember a few months back you wrote an article about the dollar going to 35 to 1 or so… If one is smart you budget yourself here in the Philliphines at 35 to 1 …..Therefore up or down you are in safe waters. We all like it here because it is cheaper to live but on the otherhand do not bring the US or another country with you for your living standards, one has to be smart. Look at what has happened to the U S. Remember even at 30 to 1 you could still be comfortable here.
Remember when it was 4to1. Of course the dollar would buy more and the peso also. There may come a day when the main currency will be based on China. No matter if the exchange rate goes down its still chaper for me to live in the Philippines. We live in a 9000 peso a month house. This house is 5 years old. That still under $200 dollars a month. In most places in the U.S. that won't even buy a person a shack. Thought that the U.S. GOV. was suppose to protect life and freedom. Not to start a new business called GM (Government Motors)Now the gov. is getting more involved in Health Care. What ever happened to the free interprise system that has worked so well in America. The market will go up and then go down. If a business gets caught at the bottom thinking that it will always be on top, and has no assets or reserve then it should go under. The market is just like life it is a rollercoaster ride. The people have elected who they want to run things in the U.S. Am thankful that I am not as poor as alot of other folks in this world. I still believe in the free interprise system. How about you? Hope your day is a good one my friends!
Hi Bob,
This topic is a very real one to consider moving forward. I had a similar take on the issue a number of articles ago:
http://liveinthephilippines.com/2008/10/p…
I think you are very correct in exploring the benefits of diversifying your currency options. It seems to make sense having at least a partial income stream in the local currency, even if one keeps the bulk of their savings nest-egg in a foreign hard currency. This kind of strategy allows you to ride out 'rough patches' when the Peso really gains in strength against foreign currencies. A bit of a hedge so-to-speak.
Anyways, another timely article, Bob. Thanks for reminding us all that we might all want to start looking at strategies that help us better manage changes in the Peso going forward.
Cheers!
The wealthiest Country in the world and generations of elected idiots, be damned the party affilitation, have run it into the ground. We are in the financial storm of the century and our current Captian at the helm is hell bent on throwing us a lead life jacket called socialized health care to the tune of a few billion dollars more annually of which we cannot afford. Sorry to ramble Bob but its hard not to when your on board this ship with a busted rudder and shes a heading towards the rocks. There are so many precarious scenarios that if one plays out our USD will be almost worthless. My immediate concern would be one of several key countries which hold vast sums of USD currency dumping it for a more stable currency…if one does it the rest will follow suit…no one would want to be the last standing without a chair when the music stops, this would devastate the value of the USD. My second concern is the continual economic slide downward, if you look at raw data of unemployed workers we are almost exactly at the same level that we had in the great depression, FDR change how they calculate “unemployed” but if you use the same method they calculated it in the 30’s we are already shamefully at that level. Unemployment benefits have been extended 3 times already…why? To avoid a civil uprising. There is a vast and deep underlying hostility towards our govt. and its growing. 2 million people marched on Washington (surf: Sept. 12 tea party:youtube it ) and you will see it was the biggest protest in the history of marches on Washington and it was barely a blip on the political radar, business as usual in DC. The Vietnam protests started out peacefully as well and we all know how that ended up, IMHO this will go the same way. As for myself gold is my preferred currency at this time.
Sorry to go on a tangent here Bob but as you can see I am livid about our current state of affairs of a once great nation.
Hi Jim – In the past 4 to 6 months, I have been doing more with Peso earning. In the past, I basically had zero income in Pesos, but lately, I have been easing it in. On some of my income sources, I think it would be tough to switch from the dollar, though. Having a mix of currencies would likely be a nice solution, though.
Hi Ron – We do try to exchange when dollar values are higher, but it's hard to know for sure when to change. Also, when you need to pay the bills you have to pay them, so you have to exchange! 😉
Hi rc – Thanks for commenting. Luckily, weddings are still relatively cheap here in the Philippines. But, the falling dollar affects us all, doesn't it?
My feelings, right now, are same as you say… the dollar is going nowhere but down in the mid-term. I hate to say that!
Hi lenny2000 – Hmm… I have never said the Dollar was going to 35, so perhaps you read that article somewhere else. I think I wrote one time that there were predictions that the dollar might go to 30, but it was not something I believed.
Right now, I can't really say where the Dollar will go, it's hard for me to get a grip on it.
I absolutely believe in the free enterprise system, Bob… problem is that it isn't really in play now. As you point out with GM and other examples… the government is getting too involved in the market.
Bob: I still believe that most currencies will stick with the dollar peg as long as oil is priced in US dollars. The Gulf States have debated shifting to a basket or Euros, but they cannot agree between themselves. The remaining central banks (at least the ones that matter) will be reluctant to shift unless the transition will happen. Exchange rates tend to be cyclical, and though we may be on a downward trend now, ultimately the trend will be upward again. During the last downward trend, you mentioned that you shifted to Euros in addition to dollars… Did that work out well for you? I am guessing that it had little bearing on your US business and a slight uptick on your European business.
BTW… Your picture shows a big pile of money… Did you take a "money bath"? (I've always wanted to do that! 🙂
Hi Bob
It's not just the $ thats loosing value. Today the £ is 73.20 which is the lowest its been for a very very long time.
Maybe the Peso is actually a strong currency whereas the $ & £ are both still suffering the effects of the recent downturn?
Hi Bob
As I read yr artical, i can see where some american forigens would concerned over the exchange rate.
What i dont get is that in the Phil, and this only my opion, it is a food basket, and I dont mean buying, I mean growing.
There is no reason to have to spend a lot to live in the Phill.
Why some of the forgiens rent I understand they cannot own, but thier wifes can, and in any country, renting is throwing away yr paso.
I believe also hard times coming in the US, but if you are in the PI
one can get by very cheaply, by being self suffient.
Grow yr own food, raise chickens, maybe a pig, and goat. Low maintance livestock.
I know these things as I was rasied that way, and most all countries you can apply it.
I got a penison, and SS. No gurantee they will last, but what I not worried about is surviving. I learned this long time ago first time I come to the Phill.
For me 2 days and I on my way home, and for me that is the Phill.
The place where I will make my stand, and I got no worries about the US dollar.
I lived pretty cheaply all my life, Phill no differnt.
Guess it all depends what u need to be happy.
Be Safe
Kenney
Sounds like quite a life, mike. Congrats!
Yep, gird your loins USD expats:
http://bloomberg.com/apps/news?pid=20601087&s…
Not long ago I wrote an article on my blog concerning people having to leave the US and move back to the Philippines.What worries me most is the number of Americans that are moving to countries like the Philippines and how it will upset their economy or will it help the economy.Believe me Bob their are people moving because of this. I can forsee a time when there will be travel restrictions on US citizens traveling abroad because they might not come back.
Hi Bob
Sorry for the mispellings and grammical errors in my previous comments. It's still early here and I haven't had my third cup of coffee yet.
Hi Dan – I hope that never happens!
Hi Bob-
You have a terrific website.
I was wondering what you and the others think about about how a retiree should diversify his income / portfolio for living in the phils? Clearly, an American receives a pension and in a dollar based income stream. If the dollar dives vis-a-vis the PHP, the American living in the Phils is hosed. I suppose the solution would be to buy investments which generate income in PHP. Even though I am a fan of emerging markets, putting the bulk of ones investments in the Phils (or any single emerging market) is a risky proposition. So how does one diversify properly? What do you think of 25% in Phils, 25% in US Dollars, 25% in Euros, 25% in other (British pound, etc.) I suppose the only risk here is that if the PHP appreciates significantly against all major currencies, then the person living in the Phils is 75% screwed and 25% OK.
Thoughts? If you had unlimited choice, what would be the best way to diversify?