I have written about the decline of the US Dollar at least twice previously on this site. But, I feel compelled to write about it again, as the situation keeps getting worse. The decline of the US Dollar (USD) is not just something for government economists or investment bankers to think about. If you are earning USD and plan to retire in the Philippines, this issue will directly affect you! I know that it affects me.
It was not that long ago that US$1 would buy you PHP56. That is right, you would get even a little more than 56 Philippine Pesos for every US Dollar in your pocket. If you had $1,000 that was worth between P56,000 and P60,000. Today, that same USD will get you only about 44 Philippine Pesos! $1,000 will get you only about PHP44,000. That is a big difference. But, projections are that it will get worse.
I read an article in the Philippine Daily Inquirer today discussing projections that have been made by a French Banking company, BNP Paribas. According to the article, BNP Paribas is now projecting that by the end of 2007 (just 3 months from now) the Peso will close at P43:$1. Furthermore, they are projecting that by the end of 2008 the exchange rate will drop to P37:$1. Now, get this – they are projecting that by the end of 2009 the exchange rate will be P30:$1. Wow, the Dollar will be worth only P30 if this is correct. And, so far, projections have been right on the mark.
BNP Paribas expects the local currency to finally catch up with the Thai baht, which is seen to end this year at 31.50 and then marginally rise to 30.50 by next year and settle at 30:$1 by end-2009.
“In countries where growth is weakening and confidence poor — such as Thailand — more [interest] rate cuts are expected. We expect the Thai baht to underperform too, as weaker growth, lower rates and an expensive currency favor other Asian currency plays,” BNP Paribas said.
The peso and the baht had traded closely against the US dollar before the Asian currency turmoil of 1997. But while Thailand was the epicenter of the currency turmoil that triggered a region-wide capital flight, the peso has lagged the baht since then.
If the Peso really does drop to P30:$1 in just over 2 years from now, can you imagine the changes that will make in the lives of Americans living in the Philippines? I know that it would affect my standard of living significantly! I get tons of e-mails every week from Americans who want to live here and ask me if they can live here on very small amounts of money. I have actually had people ask me if they can live here for $200 per month! Imagine, about 2 years ago, that $200 would have been worth about P11,200 or a little more. If projections hold out, in 2 more years that same $200 would be worth only P6,000. Even at the P56:$1 exchange rate, I do not believe that the average foreigner could afford to live here on only $200 per month. At a P30:$1 exchange rate, it would be impossible, in my opinion.
The decline of the Dollar has been so serious in recent months that I have already started taking steps to insulate myself from further decline. I have a number of income streams, but until my changes that I started, all of my income streams were in Dollars. I feel that it is time to make a change on that and to diversify the types of money that I am making. Thankfully for me, the types of businesses that I operate make it easy to change between currencies. If my current test of putting part of my earnings into Euros works well, I will make further moves toward the Euro and perhaps other currencies as well. Frankly, I can’t afford to do otherwise!
For other American readers of this column, what are your plans? Are you waiting to move here and live on your Social Security benefits? If so, those Dollars may be worth only half of what you are expecting. What will you do if that happens?
Here is another thing to throw into the mix – Inflation is quite high here in the Philippines as well. So, it’s a double whammy! Your money is worth less and less, yet when you go to the grocery store the prices seem to go a little higher every week.
It may not be time for a full panic, but making plans is always prudent. Don’t you think?
Hi Brian – While I am a Republican, I do think that the Bush policies have played a big hand in the current economic situation. I think it will take more than one more administration to turn it around too. 🙁
Bob,
Here's another explanation……
"Since 1996, the US current account deficit has soared from $US125 billion, which was 1.6 per cent of its GDP, to $US811 billion, which is 6.4 per cent. The developing world's current account in the same period has gone from an $US83billion deficit to a $US643 billion surplus. China's surplus has gone from $7.2 billion to $US250 billion.
Bernanke might be right in his attribution of blame, but the stubborn fact remains that the US is the debtor and the developing world is the creditor".
At the risk of sounding like a broken record, Bob, I've been counseling people for more than 8 years niw _not_ to move to the Philippines based on prices here. To decide upon a retirement location based on cost of living is to decide using the wrong criteria. Many people have argued with me, I've even lost a few freinds over it because thiose fair-weather freinds were not astute enough to realize that the short-term pleasure of a low price quickly fades if the overall quality of life isn't up to expectations.
The options for an American planning to retire on nothing more than Social Security or a small pension are extremely limited, Philippine Peso or no Philippine Peso. Since a majority of the oil America burns and a majority of the consumer goods sold in the US are paid for by weaker and weaker US dollars overseas what you are really saying is that the outlook for low-income retirees is bleak … and I concur.
I've also stated many times that the Philippines is a very poor place to contemplate life if you are poor. The average American doesn't even realize just how many plans and programs are in place to insure no one "falls thriogh the cracks" in the US. When I was paying electric bills and phone bills in Colorado there were state-imposed charges tacked on to each bill to insure that people who didn't pay their bill would still be served … tax those who pay for those who won't/can't. In the Philippines if you don't pay your electric bill, your house gets very dark … no questions asked.
If you show up at a publicly-funded hospital in the US, you'll get treated, insurance or no insurance … that's why people see those astounding bills of $18 for an aspirin, etc. The hospitals shift the responsibility from those who won't/can't pay onto the backs of those who can. Show up at an emergency room in the Philippines without cash and you'll likely die … you are not the government's (read tax payer's) responsibility as you are in the US.
The sokution, as I see it, is to get busy and make some more money, becuase even with several generoaus pension schemes it's going to get very tight over the next however many years I am granted … US or Philippines. Fortunately, the online environment makes that a lot easier.
It's still, however, much cheaper for Mita and i here in the Philippines … when I see those figures like $49 for a basic cell phone service and $100 cable bills, etc., I realize how lucky we still are.
And Laurence sums it up pretty accurately. I didn't bring that up becuase Americans in general get nasty and start throwing around the vipertuitous "C" and "L" and "D" and "R" words. Well you can throw all the politics you wish into the mix if it makes you feel good, but it is just a smioke screen.
It ain't politics, it's simple economics. In 11 years the US has "spent itself into the poorhouse" while even the "poor little third-world" Philippines is making millions of US Dollars in savings this fiscal year by paying off loans early and saving interest payments. It's not rocket science, it's what happens when you try to live like Paris Hilton when your income base is the Bates Motel.
Hi Laurence – I don't think there is any doubt what is going on – the USA is spending money that doesn't even exist, then they start up the printing presses and print up more! You are right on the mark.
Hi Dave Starr – Yep, I was actually thinking of you and your advice when I wrote this up. No doubt that things are going to get tough here for those on Social Security only, if things move as projected. It's time to start laying new plans and finding new avenues toward supplementary income!
Hi Bob, Im sorry but it's going to hit the philippines hard they will get the ripple from the us becauce the dollar so much a part of the country .I have spoken before that the price of property has started to drop in davao , this is all dollar related .
Our current admistration is to blame. I have never seen a President propel a nation into economic hell faster than GWB. If things continue to decline any further my hopes of early retirement will be a forlong dream.
Somewhere in Texas a village is looking for its idiot !
RIP _USA
Hi Andy – It would seem that if the value of the dollar goes down, the price of property (in dollars) would increase. Maybe I am missing your point?? 😕
Bob,
Just pray that the Chinese don't float the Yuan…..
"The financial consequences of revaluating or floating China's Currency are complicated. Many economists believe that appreciation of the yuan would cause the PRC government to buy fewer United States treasury bonds, causing bond prices to fall and bond yields to rise, hampering improvement in the U.S. economy. The ensuing depreciation of the US dollar might price oil out of the reach of the American economy, causing stagflation, a collapse of US oil dependant industries, massive unemployment and other dire economic consequences."
Hi Bob,
I have been seriously considering moving to the Philippines in a few years. My in-laws are getting older and I want my wife to spend as much timer as possible with them.
I have been making most of my financial plans based on P45/$ and now I think I use P30/$ just to be safe.
Do you think it would be a good idea for me to start a peso account to get a hedge on the rate change? Do you know what kind of interest a savings account in the Philippines paying?
Mark
I am just a kid compared to most of you all but one thing I recommend is if you really want to retire in the Philippines you need to get your big ticket items now. What I mean is if you have your house and land already in place and paid for you should be able to survive no matter how low the dollar goes. I have not been to Davao lately but around Dipolog and Dapitan I have noticed a dramatic rise in premium land prices. The housing market is starting to level off because there are now a few competitor builders in the area…but I think the land value in this area will increase even further do to the influx of OFW wealth.
Hi Laurence – Yes, the Yuan presents a whole new set of potential problems as well.
Hi mark – It's only my opinion, and I am not a practicing economist, but I think that the best move would be to diversify into a number of currencies. Keep some savings in Dollars, put some in Euros, and some in Pesos too. Keep in mind that precious metals like Gold or Silver have always been considered a hedge against inflation and monetary fluctuations. I don't have any specific Peso investments that I personally recommend. There are rural savings banks in the Philippines that pay up to 20% interest! Keep in mind that Philippine Deposit Insurance is only up to P250k, though.
Hi Garrett – Thanks for your comment. I tend to agree with what you are saying. The OFW money influx is what saves the Philippines today, and I think it is what will keep it on par, if not pull it up in years to come.
Hi Bob,
I did some research on the rural banks paying 20% p.a. There have been some issues (see link below). I would be very cautious in putting money in because even if your money is insured up to P250k, how long will it take you to get your money back if the bank goes under? I think that 20% p.a. is too good to be true. I would recommend looking into it very carefully, before ju
mping in.
http://www.pinoymoneytalk.com/2007/06/19/legacy-f…
Hi Tina – I agree. I don't put any money there. I do think, though, that it's something to investigate if somebody wants something with extremely high yield. Like anything, it should be part of a portfolio that is diversified, though, and any money put into that type of account should be money that you can afford to lose if the worst situation arises.
Let us not forget that the major reason for the dollar's weakening is the shift in international finances from the dollar to other currencies, particularly the Euro. This has been going on for the past few years.
US economic policies don't have the same effect on the exchange rates that this movement out of dollars has. Those policies, however, may be keeping the pace of the weakening dollar slower than what it might be without them.
Hi Paul – Sorry, but I couldn't disagree with you on this one more! In my opinion, it is because of the US monetary policy, and the free wheeling printing of currency that has caused the fall in the value of the dollar. Because of the fall of the dollar people are moving to the Euro and other currencies. My opinion is exactly the opposite of yours. The US Government is spending a lot of money that it doesn't have to fund all kinds of crazy policies, if you ask me. 😡
Hmm i seem to remember making the same predictions not so long ago and everyone laughed at me, ok maybe my time frame is off but the dollar decline is not so wrong. best thing is to get out of US dollars, nothing but a drastic change in financial policy will change things for the better and as long as we are in a losing war there is no hope of that. Remember Germany post world war I? The same thing could happen to the dollar as time goes on.
There was a time , many years ago , that we must pay 4 gulden
[ that's about 1,80 euro ]
Now we must pay about 0,75 euro. So the dollar is cheap for us.
But the prices in Netherland are going up more than 100% when
the euro came [ but not yor salary.]
Allso by that time we get 10 peso for 1 gulden [ is now 0,45 euro ] and that 0,45 give you now about 28 peso.
So allso the peso is cheap for us.
That means , the euro is strong abroad , but not good foor the people in some europian country's.
Yess , the " poor " country's example east europe some people get richer , but the workers still be poor , because all the prices are going up.
But for me , when i retired i get about 700 euro [ $ 1000 ] = 42000 peso
a month [ allready paid my house and land ] and i think that will be enough for the 2 of us in iligan ?
And for the euro i think the exchange rate will most be around 60 to 64 Peso.
Hi Louis – Yes, I do recall you saying something similar to this. While I don't recall laughing, I do think that I said that it wouldn't happen. We still don't know for sure, but it is forecast by somebody who has displayed an accurate record of forecasting movements in the past. I still hope it won't happen, but it is prudent to make moves to diversify into a variety of currencies as a buffer. No doubt about that.
Hi Anton – I am not sure when you plan to retire, but I think it could be unwise to count your pension based on today's exchange rate. Anything could happen in years to come – remember, it was not long ago that the Euro was worth only USD0.80. If things hold at current rates, yes, you should be able to have a nice retirement with the money you have, especially since you already own a home. 🙂
The main issue in the U.S. economy right now is the declining job growth. The Federal Reserve needs to address this as their primary concern. Dropping the interest rate means more jobs. Unfortunately, this also means printing more dollars.
The declining dollar surely will affect outsourcing jobs. The Philippines will be affected big time. The reason to go abroad for cheaper labor by U.S. companies is disappearing very rapidly. Some manufacturing jobs will go back to the U.S. The OFW dollar is buying less and less peso.
The U.S. real estate properties are on sale. This will mean holders of Philippine pesos will once again go shopping in San Francisco, LA, San Diego and Seattle. The same is going on by holders Canadian loonies and South American pesos bargain hunting properties in Florida.
The oil dollars of the Middle East are now snapping U.S. banks, stock exhanges, etc. Even China, it's moving fast to buy shares of stocks of U.S. companies. They are no longer content buying U.S. Treasury bills.
The Wall Street types will continue to have their mega-million dollar bonuses as the stock market booms with all the dollars coming from all over the world.
All these will mean U.S. inflation will soar. Allan Greenspan may yet still be right.
The ordinary American worker will not even know what hit him- working hard paid with mickey mouse dollars and buying less with it.
Somebody just said, "This country (the U.S.) needs a revolution!".
Hi Bob- I can remember in the early 80's the Dollar being about 14 peso and the GBP being 22 peso. When we bought our land it was the equivalent of GBP 1,500 for 600m2. In recent times the GBP/Peso rate was 63.84 at 31.03.00. the highest was 103.07 on the 31.03.05 currently its 91.85 as of 03.10.07. On the other hand the US Dollar is 2.04 to the GBP. By my reckoning the GBP should be worth more Peso's than is currently being offered. The point I'm trying to make is, are the exchange rates being manipulated (massaged) to offset the balance of trade and help with paying off foreign debts? I think what is important if you are to live in the Philippines is to have as little out goings as possible. Own your own home as opposed to renting, economise on the usage of utilities waste nothing. Grow vegetables if possible and rear chickens for meat and eggs.I'm a believer in balance and I'm sure that if past history is anything to go on, the good old Yankee Dollar will in future once again have its day. I don't think the current situation should put off anybody from going to live out their retirment in the Philippines after all the Filipinos have been doing it for centuaries.
Hi BOB,
Ironic that you should be touching on this issue today as I decided to sit down and send off a quick email. I was planning on asking you specifically how much you think a family of four would cost to live month to month in the Philippines? I assumed that if one had their home paid for maybe as little as 500-600 a month .
Now, aftr reading your column..hmm..not too sure. I assumed I would need to pay for my 2 daughters education at a private school included in that.
I was also curious how much or little one could find a house for ..with say three bedroom in a subdivision in cagayan de oro city… or would it be cheper to find a condo. My wife is from philippines.
Thanx for any advice you could pass on.
Scott
Hi Dr. Long – You are right in my opinion on the jobs situation in the USA. As labor gets cheaper and cheaper due to the decline in the currency value, a lot of jobs that were being outsourced to the Philippines and other countries will start heading back to the USA. That will make a big impact on the Philippine economy. In addition, with the Philippines depending so heavily on OFW remittances, this is already having an affect on the people here. The same dollars that were sent home last year are worth 20 to 25% less now! It is hurting families here already.
Hi Jim – I agree with you, that things fluctuate back and forth. It's like a pendulum, just wait it out and things will swing back the other way. This is kind of a wake up call for potential retirees with dollars, though. If you are planning on retiring on a very small amount, this should wake you up and make you re-think your plans and try to supplement your retirement in some way.
Hi Scott – Personally, I know that I could not live here on $500 to $600 per month. It varies with each family, of course, though. Even for a single person, I believe that amount is quite low to consider retiring on. You say that you have two daughters. I pay over P3,000 for education for each of my kids per month. If the Dollar did reach P30:$1 as is being forecast, that is $200 per month just for schooling for your daughters. That would leave you just $300 to $400 for all of your other expenses. I expect that the minimum you will spend for utilities would be another P3000 per month. Then you have groceries, transportation, entertainment, etc, etc, etc. Perhaps you could do it, I just know that I could not, though.
I don't know housing prices in CdO, but I would estimate that to buy a 3 BR house you should expect a minimum of P2M, and that won't be a subdivision type house. If you are talking about a nice subdivision like Xavier Estates for example, budget a minimum of P5 to 6 Million for the house, would be my guess.
I agree Dr. Long. If you look at our economic history these current events have taken place before. I look it at as a big economic circle. Eventually it all comes back around, nothing in the world eoconmics is constant, except maybe for the fact that the biggest names will always win. They will always find a way to benefit in any situation. Yes I believe that it very much orchestrated.
Hi John Culbreth – I agree that these things are cyclical. The problem is that in this cycle the Dollar has slid to record lows against many major currencies like the Pound, Euro and Canadian Dollar. I do believe that it will see an uptrend again in the future, but I am not sure if it will ever see the levels where it was just a couple of years ago.
Hi John Culbreth. Even the Republicans (majority of them) are now against free trade. The winds of protectionism are blowing across America's amber waves of grain. Globalization has left a lot of Americans in the lower economic ladder feeling very vulnerable and very insecure. Hillary is inheriting Bill's "It's the economy stupid" slogan and she may well win. There is definitely a widening gap between the the haves and the more haves- economic inequality.
Most Americans even the upper middle class are harried- it's the proverbial hamster inside a treadmill. This rat race is tiring everybody.
Hello, Bob- I wonder if there is anybody out there having a business expediting where one can move from one country to another say every three years depending on the purchasing power of the dollar without sacrificing standard of living? I'm sure somebody must be doing it. It will be a boon especially with fix-income American retirees.
Cheers!
Actually Bob with reguards to electric cost it all comes down to with or without aircon. I get along fine without aircon and spend P1,200/month for electric, however as I get older I don't know I will be able to keep that up. I plan on buying a house ASAP while the rate is good for us. Half our business will be philippines based and making pesos, the other half will be my online business and will be Euro and some dollars. I've already diversified what I have in dollars into Euros, GBP and Yen. Not much else I can do but pray that God has not led me over here just to fail.
Hi Dr. Long – Oh, now we are veering off to where we disagree! I do strongly believe in free trade, and believe that it is a good thing… oh well.
Hi Louis – You don't even want to know how much our electricity bill is… ha ha… I'd be embarrassed to say!
Hi Louis,
You look like the person I need to compare costings with as I've budgeted for power 1,700/mth, which is quite similiar to your cost.So can you give me an idea of these other budgeted costs (if they compare) I have ? They are: Rent: 4,000/mth; Water: 270/mth; Phone: 700/mth; Food: 6,700/mth
More food for thought.
Click Here
Hi Paul – That article certainly is sobering for those of us who are still monetized in dollars. Thanks for sharing!
Hello Bob.Check your site every day.You are right on the money about the dollar.Here is my Question.With land and house payed for,also car payed for can myself and my wife live in samal on 39000 to 48000P a month?I had figured my money at 45P per dollar when i started my house now im looking at 30P by the time i get there.what is your thought on my making it on this amount.
Hello Bob. I was just making a statement of what the latest sentiment in the U.S. right now is and so do with the latest Wall Street Journal Poll that majority of Republicans now are leaning against those "Free Trade Agreements" with our trading partners.
I'm also for free trade and globalization. I'm just against the Federal Reserve manipulating the 'market'. Rasing or lowering interest rates is I think against globalization. If there is indeed a free market, the flow of capital should be free and seamless and there is no need for the Federal Reserve tinkering around. Otherwise it won't be a free market.
Hi James – Happy to know that you are enjoying the site! I hope you keep on coming back! With owning your home, living on the amount of money that you are talking about is reasonable, especially if you have that amount in Pesos to begin with. In a few years, anything could happen, though, so it's good to keep an eye on the market and exchange rates.
Hi Dr. Long – I tend to agree with you. However, remember that every country has central banks that meddle in the market! It is an open secret that the Bangko Sentral ng Pilipinas plays in the currency game to push the peso one way or the other. 😉
Richard – Ok keep in mind that I rent a 3br townhouse with maids quarter out back and besides my wife we have my brother in law living with us. The electric is not far off of an estimate, but we never us aircon, just fans and we try to keep the lights to a minimum but my wife thinks there's a ghost in the house and usually turns on most of the lights at dark. Rent is P18,000/month and I consider that a pretty good deal. You budget P4,000/month in my experience I have never seen someplace rent for that little. I did see a townhouse on Lea Walker's site go for P6,500/month but it was rented within2 days. Water, ok I may not be the best person to ask about water cost because in my subdiv we are on stinky well water that is undrinkable, unbatheable and just plain nasty (it comes out of the tap smelling like farts from a buy living off of cheap beer and burritos). The water plus my Sewer cost is generally around P590/month. We get drinking water for the dispenser from Aqua Fill and that costs P60/5gal container. I do not have a landline phone as there really is no one for me to call so I spend about P1000/month on Cellphone Load and mosd of mine ends up getting shared with my wife (She is a text fiend). Food is the real kicker here as it really is dependant on how you as a person eat. How do youeat in your home country? Do you intend on eating like that when you get here? If the answer is you're a steak and potatoes guy and you intend to keep being that way then add another "0" to your food budget. Now me personally I made a list of 10 American things I can't live without and I keep these things on hand at all times to make the Philippine food more enjoyable for me. I spend maybe P5,000/month at a food store like the Pak n' Shop then another P2,000 at the public market. My diet is mostly fish, simple soup and rice, and we also eat pork and chicken. My inlaws love my fried chicken and gravy. I spent 4 months over here before I took a trip back to the US to take care of some banking issues. Before the trip I was getting tired of the monotony of Philippine food… rice all the time. I longed so much for a cheesesteak or a nice prime rib. However when I got back to the US and got that cheesesteak and that prime rib I found that eating less in the Philippines had shrank my stomache. I couldn't eat as much and the food in the US was now too heavy for me. Now that I'm back in the Philippines I can't eat enough rice and I realize I really have gotten used to the food over here.
Hi Louis,
Thanks for the costings. Well to tell you a little more about my situation. I will be living in what would be classed as a provincial area.(I think thats what its called in the Philippines). Anyhow its away from the main areas. Population approx 120,000. The rent cost is based on what my asawa has said we can rent for, so I can only go on her knowledge. There will be just the two of us so we will only be needing at most a two bedroom house. I'm a vegetarian so living on vegetables and rice is no problem for me. So it looks like I have my food costings about right. I'm not even sure if we will need a landline telephone either, however I've costed it in and if its not needed I'm sure it will be taken care of with cellphone usage. By the way no maids in our situation. When my asawa told me she does her washing on a sunday I said to her, don't you just put it in the washing machine and go and do something else? Her reply was, when you get here I will teach you how to wash clothes. A few weeks later when I asked her for costings to furnish the house I noticed she had listed a washing machine. Whew !! …. I might be let off the hook as far as hand washing the clothes go. . lol. Thanks for the help Louis.
My asawa wants a washing machine too but the machines here are not what we are used to in our home countries. In my experience they don't get the clothes clean enough for me. I do all my own handwashing, it's really relaxing to sit outside on a sunny breezy day and wash your clothes and they come out really clean. My wife would be perfectly happy living in a house in the barangay with a toilet that flushes by pouring in a bucket of water… I guess I'm just maarte cuz I can't do that LOL. If your a vegan all the better, have fun with all the new veggies over here, I like pretty much all of them except Ampalya (Bitter Cucumber). Dried beans are available over here so as to make complete proteins. When I moved into the place I rent I was lucky because it was Araw ng Dabaw, the celegbration of Davao's founding. I was able to comb the sales and furinsh the house, complete with ref and stove for about $2,300.
Hi Louis – Can't say if they still have them, but SM Dept. Store used to have US style Whirlpool Washing Machines and Dryers. They were pretty expensive, though. It's been about 2+ years since I noticed them there. 🙂
Bob – Shhhhhhhh… My wife reads your site… 😆
Hi Louis – Oops! Sorry….. 😆
i will be getting my income in GBP as i am from england is the british pound doing better than the dollar i am moving to philippines soon in april and my income will be £1.500 a month
malcolm
bob me again when i move to philippines in april io was going to take $10.000 cash do you think i should take british pounds instead?????also if thr dollar does dive will the pound dive with it what is the rate for the pound against the peso last i heard it was about 89 pesos the pound thanks bob
malcolm
Hi Malcom – I think that for a short term transportation of the money it doesn't really matter if it is dollars or pounds. If you are planning to hold the cash long term, though, I'd hold it in pounds. I just checked the pound rate, and one pound buys 88.8 Pesos.