Is the Philippine Peso Weak?

Taguig, NCR, Philippines - Photo by Meo Fernando

The value of currency becomes a hot topic especially nowadays when inflationary pressure is plaguing different countries around the world. This boils down to the question: where does the value of currency come from? And the short answer is, in its “purchasing power “. Why purchasing power? Because a currency with low “purchasing power” can only purchase a few goods and services, thus, shows a sign of low-value currency. That means that the strength of a currency lies in its ability to purchase, if your currency has limited ability to purchase that means that the strength of your currency is also limited. For example, we all know that the US Dollar is a universal currency; it is widely accepted worldwide, compare with our PH Peso, our currency is not widely accepted, in that sense the US Dollar has more strength compared to PH Peso. We will see that our currency is gaining strength if we can directly purchase from other countries without converting our currency to US Dollar. This means that our currency is so valuable and trusted, that other countries would love to hold our currency straight coming from our country.

What are the other indicators of the value of a currency? Let’s compare the salary of a nurse here in the Philippines and the US. The monthly salary of a nurse in PH is around P30,000 while in the US it’s around $3,000 (note that these are average estimates). Both nurses in the US and the Philippines have the same job, both have the same skills, and the hours of work are also the same ranging from 8 to 12 hours. The difference is in the value of the currency, the nurse here is get paid in Pesos, while the nurse in the US is get paid in Dollars. If you bring the P30,000 to the US and convert it to Dollars, and you bought goods and services there, you will notice that you can only buy a few things, unlike if you are in the Philippines. On the reverse, if a nurse in the US brings into the Philippines $3,000, he or she will be able to notice that the monthly salary in the US has more purchasing power compared to the monthly salary of a nurse in the Philippines. Very evidently as a number, 30,000 is greater than 3,000 but if you add the currency, things will change, the greater number becomes less, this is a classic example of the value or weight of the currency.

The next question is, how do we strengthen or increase the value of currency so that we can get more from each Peso that we have? The straightforward answer to this again is to increase first the “domestic purchasing power” of the currency. Meaning, our 1 Peso should be able to purchase more inside the country, this is the inflation method (lower the inflation rate); while the second method is the income method, which is to increase the income of each person in the country to increase his or her ability to avail goods and services. Furthermore, we should create more quality infrastructure and create high-quality goods and services to support the value of our currency. We should also partner with other countries where our currency is highly valued, which will result in lower import prices from the partner country.

The final question is, is the PH Peso weak, or is the Philippine currency weak? And the final answer is “No”, the PH Peso is strong because we have good and improving infrastructures and we have a strong labor force. The Philippine currency can also exceptionally command domestic labor, people here are working 8 hours and more and are paid in Pesos. People in this country have great trust in the local currency, in such a way that they will hold the PH Peso until they die. Thus, there is still equivalent labor, goods, and services for every Peso in the market circulation and the trust in the currency remains high which is an indication of high trust in the government; for that, these make the Philippine currency strong.

But not everything is perfect, there are many factors to date that are contributing to the softening of the PH Peso (making the Peso less strong, but not weak), and the most visible is “inflation”. The inflation problem today is not only being experienced by the Philippines, but this is also a worldwide phenomenon, which means that the prices of goods and services around the world are increasing. The government must combat the rising prices of basic goods and services, because this is the main culprit that weakens the purchasing power of the people and in turn weakens the value of the currency (low purchasing power = low power or value of currency).