Changes come and go in life. Some changes are good, some changes are bad. Some are neither good nor bad, just different. But, for sure, change is a constant thing.
In recent years, because the worldwide economy has been faltering, many people have had to go without a raise in their salary. Wages have stagnated over the years, and if you do get a raise, it is often a tiny raise.
People who are expats in the Philippines, though, have gotten a huge raise over the past few months! Even those who don’t work have gotten a “salary increase.” How? Why? Because the value of the US dollar has been climbing, and the value of the Philippine Peso has been falling. After about 7 years of a very weak dollar, it is truly good to see us starting to gain a little more buying power!
When I first moved to the Philippines, the US Dollar was worth roughly about 40 Philippine Pesos. Within months after coming here, though, the Peso started a steady decline in value. Within just a year or two, the US Dollar was worth more than 50 Philippine Pesos! As the exchange rate continued to improve for expats, the dollar finally reached it’s top value of just over P56, and it stayed there for some time. In around 2006, though, the dollar started falling like a rock! The dollar was again below P50, and still falling. Soon, it settled around P47, but didn’t take long to resume it’s nose dive!
For the past couple of years the dollar has been fluctuating between P40 to P42 or so to the US Dollar. While I, and most other expats, have not been happy with this valuation of our dollars, we have gotten used to it and sort of resigned ourselves to the fact that this is what our money has come to be worth. Sad, but reality.
About 3 months ago, many of us expats started to notice a bit of an uptick in the value of our currency. The Peso started falling. The Peso had been pretty firmly at the P40 level since the first of the year (and even before), but suddenly it was getting to about P42! Nice. That was a 5% jump in value for the dollar, and while it was nice, it was not that noticeable. But, when the dollar started getting up to P43 or a bit more, you could start to feel the difference!
Right now, as I write this article, the dollar is worth P44.7. We are getting ever so close to a P45 dollar! And, you can really feel the difference, financially. For example, if you transfer $1,000 from your US bank account to your Philippine account, that means you get an extra P4,400 or so now compared to the first of the year. At the beginning of the year, P4,000 was the rough equivalent of $100, so now you are roughly getting an extra $110 or so when you change $1,000. That is about an 11% increase. It’s great to see again! I don’t recall having a dollar increase this large since the dollar started falling in 2006. I’m liking it!
For me, and many expats, I earn US dollars. I am self employed with lots of different types of businesses, but all of my clients are overseas, not in the Philippines. I have clients in the USA, Europe, Australia and New Zealand. All of my clients pay me in US dollars. So, having this improved rate of exchange is just like getting a pay raise! And, it’s a nice raise, I must say, about an 11% increase in the period of only a few months. Of course, I took a huge pay cut over the past 6 or 7 years as the dollar fell in value, so this increase is just moving me back to the area where I used to be! Also, you never know, things could start moving back the other way at any time.
One question that I have heard from lots of expats over the past few months….
Bob, why is the exchange changing now?
Well, I am no expert, and anything I way would be a guess. I have been doing some research, and the most common reason that I see in the news is that there is a lot of talk about the USA cutting back in the spending they have been doing trying to stimulate the economy there. Coming up in a week or two, I understand that the US Federal Reserve board is going to be meeting, and one of the things that is a main topic at the meeting is cutting back on QE3, the Quantitative Easing program where the Fed has been pumping about $85 Billion per month into the Stock Market. If they cut back on QE3, we will likely see even more increased value in the US Dollar. That would certainly be nice for those of us who live abroad!
So, yeah, I”ve gotten a raise lately. And I’m liking it!
It’s definitely noticeable. It was around 50 pesos to the dollar in 2006, when my house was built. It’s a good thing I didn’t wait another year to do it.
Hi RT – It’s like you got a 20% discount on your house! You can’t beat that! I am hoping we will see 50 again, although I know that it is doubtful.
Since I will be coming soon, I’m excited to see the exchange rate go in my favor too! I’ll be spending a lot of money on a vehicle, and rent, so if I can rent a place for less U.S. dollars, I’ll be happy. Same for spending less on a vehicle. 🙂
This is good news for everyone, I think!
Tell me Bob, how is it the Php drops, when the Philippines economy continues to post higher earnings than anyone else? I’m not complaining, just not sure how that happens.
BTW – Nice to see they got the pork belly woman behind bars in her aircon room with couch and desk. She is really roughing it! LOL!!
Hi Scott – Sometimes (most of the time) these currency exchange fluctuations just happen, seemingly for no logical reason at all. Right now, I think that the current changes are due to the talk about the USA cutting back on the stimulus. I think it is less of the Peso falling in value, more of the Dollar getting stronger. You just never know, though!
I think you mean the “Pork Barrel” woman… she might eat pork belly, though! 😉 I know that I do from time to time! 🙂
YOu might wanna check the Philippine stock market to see why the rates are rising. The EPHE has fallen from around $45 a share down to $29. During the first half of the year the Philippine stock market took off but is now in correction mode.
Bob,
this IS great news. Even for those of us in the US. Many of send money or support to family back home and this lightens our burden a bit.
However I always wax nostalgic for the time when I first lived in the Philippines. Peso rate was 7.50 per dollar BUT it went so much further than even 45 pesos would go today.
In closing, and I have seen this before, but it bears repeating….if you live in the Philippines and cannot absorb some exchange rate flux, then ya did not plan very well. Smart folks would still do well to budget with a cushion for fixed and variable costs. Our Supportee is using 40 as a base for budget since we discussed a chusion of 5 to 10 pesos for planning purposes and extra (if it works out that way gets banked.
Enjoy that raise sir….you sure earned it after the last sveral years of chaos finances.
Hi Tito Joe – Very sound advice when you say that you need a cushion! It is a must. I have to say, the dollar value fell in 2006/2007 so quick that I was hurting until I was able to adjust my lifestyle a bit, and adjust my business practices to where I could earn a bit more. A lot of expats were hurting a lot at that time. It’s good to get a little breather now, but we just never know if it is going to stay that way.
Thanks for your comment Tito! 😉
Going to the bank this morning to do my monthly exchange. Feeling pretty good about it this month. That extra 10% or so is definitely noticeable. I’m just considering it a bonus, and don’t intend to plan on it. So if it goes back down I’m not hurting.
Hi Randy – Your plan is very sound. Accept the raise gladly, but don’t count on it! We never know what tomorrow holds! Hopefully, tomorrow will be even better, but we cannot be sure!
Heh, I’ve been using 40 for all my budget calculations since 2008. I’ve never been disappointed yet.
Yeah, I have too, RT. There were a couple of times when the Peso brushed the 40 mark, but so far has not fallen below! I hope we never see a sub-40 Peso!
Bob,
Thank you for this article, good to know this information.
You are welcome, Rich. I hope that things keep moving in the right direction!
I hate to be a downer here but the talk of cutting back is gonna just be that. If they actually cut back on qe3 the dow jones and s&p and nasdaq would free fall like you have never seen. as you said Bob they have been propping up wall street with fake money and like the house of cards that it is one wrong wind blows it down. and that’s no good for anyone anywhere.
Oh, you sure are right, Bubba. The dollar is being propped up by a bunch of funny money. But, still, the dollar is the reserve currency that the world prefers at this point. Over the past few years there has been talk of that changing, but so far it has not. All we can do is keep on crossing our fingers and hoping that things improve!
Great Article as usual Bob! when I was in Tagum City in early 2006,the peso was around 52 if I recall..6 weeks later it had dropped to 50-51, it made a difference at the atm. Have a great day Bob!
Hi Randy – Exchange swings can certainly make us feel the pinch, or the purse, depending on which way they go. Lately, the value of the peso has been dropping pretty quickly, as much as about a half peso per day. That won’t keep up forever, but as long as it keeps going my way, I won’t complain! 😉
The picture of those stacked and bundles $100s was taken in your office? LOL
Oh no, Mike. That stack was in my car, in case I need to pick up anything at the convenience store on the way home. My office has extra storage, so I keep the big pile there! 😯
Tell me again where you park your car.
I park it on the street, right in front of my house, and keep it unlocked. Oh, by the way, if you swing by please say “hi” to Bruno… he’s the big guy in the front seat! 😆
Pound sterling doing well too, 69 peso im a happy bunny lol
I think the whole expat community is happy these days, John! Hope you are doing well!
I know that the recipients of remittance will be happier at the rising dollar.
Hi Gary – For sure! Lots of people will be happy with the news! In fact, it is also good for many Philippine businesses, because they export a lot of products and earn dollars by doing so.
I think most people would be happy if the currency exchange rate stabilizes at around 44-45 pesos to the dollar. Once the peso falls too much, remember then peso inflation kicks in as a lot of goods are imported and paid in USD.
Actually, if you look at current statistics on imports, which are released by the Philippine Government every month, the amount of imports has been falling over the years. Of course, you are right that it causes inflation, but I just think the amount that imports would cause inflation is less than you think. I could be wrong, though, no doubt.
Also, on a macro economic view, a falling peso also indicates capital is flowing out of the country, so less investment. For the expat here, its good, but for the long term Philippino economy, its negative. Need a strong peso for development growth.
BTW, I get paid in USD, but work for ADB so am on both sides of the fence…
Hi Don – Yes, I understand. But, as you said earlier a Peso around 45 or so is probably OK. I will argue that 50 would be OK too.. but I admit that I am looking out for my own interests! 😉
Hi Bob, very interesting article, at least the USA dollar is doing very good in the Philippines, but unfortunately the aussie dollar has done a nose dive to 39.72 which hurts:(
Hi Mel – Yeah, the AU Dollar has been doing poorly. It has fallen, pretty much on a worldwide basis. Not long ago you guys had overtaken the US Dollar, but now our dollar is back ahead of yours. Sorry, my friend!
Not that good at the moment Bob, step daughter in Davao today for a brain scan, she vomited the other day and went blind, so not good.
Oh my, John. I am sorry to hear the bad news. My thoughts are with you and your family. Godspeed.
Bob;
I had my landlord years ago try to raise my rent because the peso had fallen and the dollar was worth more. I asked him if he was first going to refund the money he made when he rented me the house at 23 pesos to the dollar? After a major-major head scratch he went home.
At 55 to one I built my house, and the rental had sat empty for the next 4 years.
Hi Paul, nice to see your picture on your comment again.
I have had a similar landlord experience. The landlord wante to write into the contract that if the dollar rose in value the rent went up. I said no problem, but if the dollar fell, rent would go down. He struck that out of the contract quickly. Ha ha
If we could figure out the real reason of what makes the exchange rate of US dollar to the Philippine Peso change, or why the price of gas goes up or down, or what makes the stock market value change, then we could become rich. All of it defies logic.
Your last sentence sums it all up for me, Loren!
Bob,
Either way the exchange rate goes, i’m in pretty good shape.
That is a good place to be, PapaDuck.
Hi Bob – Sounds like your good for a loan. He he. Hopefully the Australian dollar can keep up. Even if I got 35php for the dollar that is still good. I always thought 40php for the dollar was good, but 45php for the dollar even better.
Hi Brenton, I have to say, I am really spoiled, having lived through the days of 56.
Hi Bob – 56 is unimaginable. That would get so much bang for the buck.
Those years of 56 were some great years, Brenton..
I’m glad for all you expats there, wish I was ready to come on over now myself, but am not ready just yet.
Would like to add this to all the head-scratching questions also. Why are interest rates so incredibly low here on any kind of savings accounts. Lucky now days to get 1% interest on a 3 yr. CD, for the most part you have to do a 5 yr. one to get 1% or slightly over it.
I would not put much money in the banks there, but do you know Bob, what kind of interest rates do the banks there have these days?
Hi Bill, interest rates there are very low because the fed is pumping out lots of cheap money to stimulate the USA economy. Unfortunately, bank interest rates are quite low here too.
Bill,
Time deposit interest rates are about 2% at this time.
I understand that ,as part of the stimulus , they have been doing that for years now. This last 1 1/2 years especially though, the bottom has just dropped out completely, and the forecast is for them to stay this low until the end of 2015 at least. With mortgage loans on the rise now, seems to me then the savings rates should be rising also. Guess that’s why I’m not an economist though.
Hi Bob and glad All USA expats are enjoying the raise. When I was in Makati City when the Peso went over 50 to 1 …..all the business owners were complaining and said they had to raise their prices so they would not lose money? So they set an artificial floor of 50 to 1 USD to set their pricing? I told many of them that they were hurting the locals a lot by doing this….there point to me ….was that most of the local money is coming from overseas workers any way? Problem is …….once they raise prices, they don’t lower them when the exchange rate falls again. I hope prices stay the same this time?
You hit the nail on the head. The prices get raised, but never lowered when the exchange rate goes the other way. Gets kind of frustrating.
Neither am I. I just hope this big economic mess gets straightened out one of there days.
I remember back in 1988 when the Peso rate was P14 to the dollar. San Miguel was 1.5p a bottle, a trike ride was P4 and a nice hotel in Makati was around P600. When I left in 1991 after Pinatubo, the Peso rate was around P23. My experince is that when the Peso rate falls, prices go up.
I was there/here in June and October of 1983. It was 10 pesos/dollar in May, 20 pesos/dollar in October. A trike was 3 pesos and a jeepney was 50 centavos. Again in 1986, 1987 and 1988 (and not again until I moved to the Philippines in 2006). In April of 1986, I think a hotel room was under 500 pesos. The other times, I stayed with relatives. On one trip, a case of beer was 48 pesos. That doesn’t even buy two bottles of Red Horse now.
Those were the days…
Inflation is a killer, Joe. No doubt. I never saw P14 to the dollar, but the first time I came to the Philippines it was P19. That was in 1990.
Hi Bob- Although we have seen a recent increase in the amount of pesos we receive to the £, $ & Euro, there is no doubt that prices here are increasing to the point of the advantage being wiped out. Now that’s what I call inflation.
Regards.
Jim.
Hey Jim,
I do most of my shopping at the Subic Bay Freeport Zone. Their prices don’t go up like the Olongapo businesses. Of course, their prices tend to be slightly higher for some things anyway.
Hi RT I don’t mean in the last few months but particularly over the last 5 years. In 2008 Diesel was 28 pesos/ltr now its almost 58 per/ltr. Electricity as well as other utilities have increased likewise as well as local transport costs and food. Yes we are getting a little more pesos for our respective currencies but it will take a lot more to make up for the inflation deficit which is constantly rising.
Regards.
Jim.
Hi Jim, it seems that there is inflation whether there are currency fluctuations or not, so at least the increasing value of our currencies acts as a buffer.
Bob,
I like your reasoning. For years now U.S. economic policy has devastated the value of the U.S. dollar. At some point U.S. leaders need to recognized that “juicing” Wall Street with borrowed money can’t continue and will eventually lead to a collapse. Maybe we have finally reached that point but I’m not betting my devalued dollars on it.
Hi Jeff – Unfortunately, the politicians on both sides of the aisle will just continue to do whatever they think will benefit them (not us). The juicing will continue for a long time, I only hope that they begin to cut back on it soon.
As of 3:21am EST today, the Peso was 50 (acutally 49.92) to the US Dollar. As long as the Peso number keeps increasing, it’s good news to expats (current and future).