When I moved to the Philippines in 2000, it felt like a party. Have you ever heard the song….
Up, up and away in my beautiful balloon….
That’s how it was to be living in the Philippines.
I am talking about the US Dollar. The value of the dollar was constantly moving up. It was almost a daily thing that the dollar would be worth a bit more than it was the day before. From time to time things would become stagnant and the dollar would remain at a fixed level for a while, but sooner or later you could count on it… the dollar would be worth more!
The dollar peaked out in around 2005 or so, at a level of P56+ = $1. It was great. Quickly, though, the dollar began losing value. In fact, the dollar dropped all the way down to P40 = $1, but we never breached the P40 level. Over the past couple of years, the US Dollar has rebounded, and came almost all the way back to P50, but never went over 50.
This year, during 2010, the dollar has ranged from about 45 to 47 or so, but held steady around 47 for much of the year. Since July or August, though, the dollar has been on a steady decline. As I write this article, the US Dollar is worth around P43.5 or so. And it is falling. In fact, Philippine analysts are saying that by the end of the year the Dollar is likely to be in the 42 levels.
In my opinion, within 6 months from now, we could again be looking at a dollar that is worth P40, or even less.
Fact is, the lower the dollar goes, the better it is for the US Government. Why? Because the US Government is deeply in debt. Repaying that debt with a dollar that is worth less is cheaper. Deflation of the value of the dollar makes the debt worth less, so it is easier to pay back. It’s all complicated, but if you really analyze the situation, it is better for the US Government if the US Dollar is valued lower. Have you noticed that the US Government is working very hard to force China to increase the value of their currency? If the value of the dollar goes down, it not only makes the debt easier to repay, it also encourages people in foreign lands to buy more US made products. So, at least in the short term, it is an advantage to the USA if the currency is worth less. Do you see anybody in the US Government who is working hard to increase the value of the dollar? I don’t. I don’t think we will see that for some time, either.
For US expats, no matter where in the world they live, the decline of the US dollar hits them where it hurts most – right in the wallet. If you are earning US Dollars, as I am, and living in a place where you cannot directly spend US Dollars, every time the dollar moves down, you get less and less when you change your money into the local currency, in my case Philippine Pesos. What is the difference between a dollar that is worth 40 and a dollar that is worth 56 like I saw a few years back? Well, lets say that you live on $2,000 per month. The difference is that if the dollar is 56 your $2,000 is worth P112,000. If the dollar is worth 40, your money will get you only P80,000 – a difference of P32,000 per month! My friends… that is a big difference. When the dollar slides as it is now, life gets a little harder for expats, and for some it gets a lot harder.
Fact is, I know a number of expats who had to return home to their home country due to currency fluctuation. If you are planning to live in the Philippines, do not count on a high value of your local currency, always make your plans on a low rate, so that your budget will not suffer when things decrease. When the value of your currency is up, you will enjoy a little bonus in life, but you won’t have to go home when your currency is down. It only makes sense to plan for the worst case scenario.
So, where is the US Dollar heading? Unfortunately, in the middle term, I only see the trend as down. It may rise from time to time, but over time, it is my opinion that it will go down for now. I hope we can see a P50 level again, but if we do, I think it is a long ways off.