Peso gaining way too fast

A newspaper headline (today) reports that the Philippine currency is gaining way too fast. What does this mean?

In economics, we were taught that a currency devaluation is not neccessarily bad. Devaluation encourages exports and discourages importations. For the Philippines, the peso has been on a constant decline for a long time and since a lot of consumer items are import dependent, consumers have been complaining about the reduction of their purchasing power.

Since 2006, the currency started to appreciate and now, exporters are being largely hit. Their costs are in peso and the export prices are dollar denominated. The appreciation of the peso have suddenly made them uncompetitive. In order to compete, they are forced to sacrifice by reducing their prices but their problem continues. Every decrease in their selling prices are being overtaken be a fast appreciating peso.

Its a a tough scenario for this businessmen. However, my stand is for the government to let the peso find its true value and not intervene. The Philippines must find its true level of competitiveness and compete in areas where it is superior.

Besides, the consumers stand to benefit from all these.

No comments: