It’s a nosedive. Freefall. Hard times ahead, perhaps.
I’m talking about the US Dollar exchange rate for Philippine Pesos. I predicted in my predictions for 2010 that the US Dollar was going to experience some tough times in terms of exchange rate, and so far, I’m afraid that my prediction is proving to be correct. I wish it were not true.
We started off 2010 with the Dollar trading at P46.14 to the Peso. Over the past year the Dollar has traded as high as 48.7 to the Peso. Currently, the US Dollar is trading at the low end of the P44 range, around P44.2, depending on when you check it. So, this calendar year we have lost about 5% of the value of our money, and over the past year (since April 2009) we have lost about 10% of the value of the US Dollar. Figure that inflation here in the Philippines has been in the 7% range, and adding the decreased value of the Dollar, and American expats have lost nearly 20% of our buying power over the past year!
Expats from other countries are doing a bit better, although not great.
Here is what our British expat friends have been experiencing:
So, one year ago the Pound was in the 71 range against the Peso, during the course of the past 12 months, the Pound went as high as nearly 81, and currently the Pound has dropped back to 68 range. So, the Pound is down about P3 to the Pound since a year ago, but as much as P13 against it’s highest values in the past 12 months. So, things are not looking so good for the Brits either.
Here is what our European friends have been experiencing:
One year ago, the Euro was trading in the 62 range against the Peso. Over the course of the last 12 months, the Euro climbed as high as 71 against the Peso, but now it has fallen back to only around 60 to the Peso.
Our Australian friends seem to be doing the best, here is what their currency has looked like over the past 12 months:
As I said, this is the best looking currency graph out of the foreign currencies that I looked at and how they have been trading against the Peso. A year ago the Australian Dollar was trading at about 34 against the Peso. It later climbed as high as 44 and has now settled in the 41 range, so our Aussie friends have actually experienced an increase in the local value of their currency over the past 12 months. I wish we Americans could say the same thing! I suppose that this really makes sense, because the Australian economy was a lot more resilient through the economic downturn than the European, or particularly the American economy. The Philippines never did enter a recession over the downturn, so these numbers do tend to make sense.
Since the USA is not only continuing deficit spending, but actually the deficit in the States is ballooning, it can only be expected that the Dollar will continue to fall and make life even more difficult for American expats here. It is likely that the European currencies will continue following that trend as well, as the Eurozone is experiencing problems, particularly related to the financial situation in Greece. These factors will continue to pull down the US Dollar and the British Pound and Euro as well.
I wrote an article on Monday about the fact that a lot of expats that I know are moving back home after being unable to make it in the Philippines. One of the reasons that a number of these people have given to me for moving back is because of the instability of the Dollar, causing them to give up on living in the Philippines. In my opinion. the amount of fall of the dollar has been relatively small so far, and I can’t imagine somebody bugging out because of a 5% loss of value in their home currency, but if current financial trends continue, it would make sense to see a lot more expats being forced to leave the Philippines due to an inability to afford to continue living here.
So, how do you solve the problem and make yourself more financially secure, no matter what currency exchange rates come down the road? The answer is relatively simple. First, you need to learn how to live on a more tight budget. Secondly, and most importantly, we come back to a word that I talked about recently: Diversify. Let’s say you are an American expat, like I am. Your earnings from a pension, Social Security, or your savings are in US Dollars. It’s time that you start looking at how to start bringing in a few Philippine Pesos too. Can you open some kind of business that will allow you to earn from the local economy? It can be done, and it is something that I am currently studying, looking into and working on. I expect that by the end of 2010, I will have a Philippine based brick and mortar business that earns Pesos to compliment my other Dollar earning businesses. Having that will insulate me from Dollar variance in the exchange rate.
How about you, do you have a plan for how you will protect yourself from currency fluctuations? It’s something to think about, think about it now before it is too late.