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?