How Can A Competitive Currency Benefit the Country?
Discussing the pros and cons of an undervalued currency is mind-boggling and one realizes that we need to study it further.
I recently attended a “talakayan” on this topic and it is a very interesting discussion of the issue—how foreign exchange rate affects all of us.
For example, on one hand, a weak peso meaning at Php46.00 exchange rate, when it strengthens means exchange rate goes lower to Php4o.00. Well, it all depends on the place where you are coming from. Exporters and OFWs will be affected immensely. Because peso proceeds through dollar remittances or export sales will yield lesser pesos. A US$1,000 remittance will give hpP40,000 instead of Php45,000. Php5,000 less.
But if you think of the cost of fuel, water, consumer goods, and electricity you will realize that an undervalued currency will mean lower electric bills, lower consumer goods, lower fertilizer and other farm inputs. Because you use less pesos to finance the dollar used for importation of fuel, etc. For example, if the exchange rate of the dollar is Php4o.00, cost of electricity will go down by 20% and everything else. Because we import more than we export, an undervalued peso will help our economy in a big way. A UAP professor said “on average a one percent real depreciation could increase exports by 6% to 10%. In 2009, the peso is overvalued by 11.5%”.
A good example of an under valued currency is China. Because it is undervalued China can compete with all countries in the world from a strong position of competitiveness. And its economy is robust and healthy. Through a competitive or undervalued currency, our country will be stronger as one can see. Sometimes it is confusing to discuss this issue. But just remember we spend more from imports than exports. We are an import-dependent country.
The past 20 years have shown that the OFWs were able to send their children to school, build houses and live fairly well. But when the OFW children who are now doctors, teachers, engineers come looking for domestic jobs – they cannot find any.
Discussing the pros and cons of an undervalued currency is mind-boggling and one realizes that we need to study it further.
It was an interesting “talakayan” with economists, top-notch UAP professors, OFWs, furniture exporters, initiated by Clara Lapuz of Mama Sita. They are suggesting several possible initiatives that government have to undertake. Among them are stop foreign borrowing, borrow from local sources (OFW money), prepay foreign debt and give priority to increase production and employment. It becomes apparent that a transparent balancing act has to be done by government. Undervaluing currency is a growth booster. In the short term, exporters and OFWs will feel the pinch but over the long term, it will also be good for the country.
I think it will be a continuing dialogue with possible sharing of the output with the presidentiables.
I look forward to more meetings and clarification of issues on this matter.