The Philippine Peso and Foreign Currencies

Trading with other countries is also important economic activity that impacts on the economy. Selling
locally made products, called exports, means we earn dollars as payment for these goods bought by
foreign buyers. In the same manner, we buy goods from other countries and these are our imports.
When we trade with other countries, we need a common currency to use to pay for goods we buy from
them and for them to pay us for goods we sell to them. When we travel to foreign countries, we may
bring peso or the US dollar, then convert them into the local currency of the country which we visit. This
is why we need conversion rates and these are based on the existing foreign exchange rates.

The rate of conversion of the Philippine peso to a foreign currency is reflected in the exchange rate. If
we have pesos that we need to convert into dollars, we need to know the current exchange rate. These
rates are dependent on the workings of demand for and supply of currency in the market. For example,
US dollar is in demand, the price of the dollar will increase and will be reflected in a higher exchange
rate in favour of the dollar, which means one will need more pesos to buy dollars.

BANGKO SENTRAL NG PILIPINAS

FINANCIAL MARKET OPERATIONS SUB-SECTOR
REFERENCE EXCHANGE RATE BULLETIN
March 27, 2020
EURO US DOLLAR PHIL. PESO
COUNTRY UNIT SYMBOL
EQUIVALENT EQUIVALENT EQUIVALENT
I. CONVERTIBLE CURRENCIES WITH BANGKO SENTRAL:
1 Supply –Demand and the Philippine Economic Problems
1. UNITED STATES DOLLAR USD 0.906454 1.000000 51.0740
2. JAPAN YEN JPY 0.008286 0.009141 0.4669
3. UNITED KINGDOM POUND GBP 1.102429 1.216200 62.1162
4. HONGKONG DOLLAR HKD 0.116932 0.128999 6.5885
5. SWITZERLAND FRANC CHF 0.940695 1.037775 53.0033
6. CANADA DOLLAR CAD 0.645439 0.712048 36.3671
7. SINGAPORE DOLLAR SGD 0.633574 0.698959 35.6986
8. AUSTRALIA DOLLAR AUD 0.547408 0.603900 30.8436
9. BAHRAIN DINAR BHD 2.408220 2.656748 135.6907
10. KUWAIT DINAR KWD N/A N/A N/A
11. SAUDI ARABIA RIYAL SAR 0.241400 0.266312 13.6016
12. BRUNEI DOLLAR BND 0.631367 0.696524 35.5743
13. INDONESIA RUPIAH IDR 0.000055 0.000061 0.0031
14. THAILAND BAHT THB 0.027737 0.30600 1.5629
15. UNITED ARAB EMIRATES DIRHAM AED 0.246802 0.272272 13.9060
16. EUROPEAN MONETARY UNION EURO EUR 1.000000 1.103200 56.3448
17. KOREA WON KRW 0.000747 0.000824 0.0421
18. CHINA YUAN CNY 0.128212 0.141443 7.2241

II. OTHERS (NOT CONVERTIBLE WITH BSP)

19. ARGENTINA PESO ARS 0.014156 0.015617 0.7976

20. BRAZIL REAL BRL 0.180479 0.199104 10.1690
21. DENMARK KRONER DKK 0.133962 0.147787 7.5481
22. INDIA RUPEE INR 0.012105 0.013354 0.6820

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 23. MALAYSIA RINGGIT MYR 0.209343 0.230947 11.7954
NEW
24. MEXICO MXN 0.039027 0.043055 2.1990
PESO
25. NEW ZEALAND DOLLAR NZD 0.538434 0.594000 30.3380
26. NORWAY KRONER NOK 0.087170 0.96166 4.9116
27. PAKISTAN RUPEE PKR 0.005409 0.005967 0.3048
28. SOUTH AFRICA RAND ZAR 0.052314 0.057713 2.9476
29. SWEDEN KRONER SEK 0.091071 0.100470 5.1314
30. SYRIA POUND SYP 0.001767 0.001949 0.0995
NT
31. TAIWAN TWD 0.030035 0.033135 1.6923
DOLLAR
32. VENEZUELA BOLIVAR VEB 0.000004 0.000004 0.0002
**** THB On-shore price
Source: REUTERS’ FOREX CLOSING PRICES as of NY Time- 26-Mar-2020
* Various banks in Bahrain as quoted in Reuters’ Screen.
** Asi
*** Effective 01 Jan 2008 Venezuela’s official exchange rate was changed to 2.15 bolivars per dollar from
2,150 per dollar
Source: Bangko Sentral ng Pilipinas (BSP)

The table shows the list of various currencies into which Philippine peso is convertible. The most
commonly traded currency in the world is the US dollar. Before the United States economy experienced
economic recession in 2008 to 2010, the dollar had a very high value in the market. In the Philippines
the dollar was at its highest when we needed ₱60 to buy one dollar. Today, the exchange has gone
down to the level of ₱48 to ₱50 per dollar. This is likewise the effect of the workings of demand and
2 Supply –Demand
supply in in the market. When the supply of a currency increases,and the Philippine
its value tends to Economic Problems
decrease and we pay
a lower price for it. When the demand for a foreign currency increases, its value will increase and we pay
a higher price for it. We need foreign currencies to trade with other countries.

Housing Shortage and the Real Estate boom in the Philippines

Demand and supply also play an important role in the Philippine real estate situation. In the late 1990s,
during the Asian financial crisis, construction hit low levels in the Philippines. Some high profile
construction projects were abandoned and demand for housing was at a low level. Some real estate
companies even had to close. This was the effect of decreased demand for construction projects.

However, as soon as the Asian countries recovered from the crisis, the construction sector also started
to recover. High-rise condominium buildings and townhouses started to bloom in the metropolis. In
Metro Manila, we still continue to see new buildings rising. The real estate boom currently being
experienced in the country may also be traced to the booming Business Process Outsourcing (BPO)
sector in the country. With the rising number of BPOs in the metropolis, there is a need to put up
offices, which also means an increase in the demand for commercial spaces. And with more employees
working in these offices, some are moving from the province to Metro Manila, there is also a rise in the
demand of residential spaces.

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 The residential market in the country continues to grow because of Filipinos who pursue their dream of
owning houses. Rich people continue to have more options, with new housing available at The Fort in
the Global City in Taguig, as well as in Alabang, in Makati, Quezon City and Parañaque.

The increase in residential demand may also be traceable to the OFW sector, with remittances allowing
their families back home to buy more affordable houses. Office buildings and high-rises continue to
sprout all around us. We see numerous construction sites, as developers try to meet the backlog in
housing for Filipinos. Promoting of housing developers is so aggressive, we walk around the malls and
their agents come up to us with beautiful brochures informing us of available condominiums or
townhouses with financing made easy and with light terms for the buyer.

Rent and Price Structure

The layman’s concept of rent is payment for the use of land or buildings belonging to others.it is the
compensation made to the owner of such land or building. From the point of view of economics, rent
refers to a payment made to or for a factor of production over and above the amount expected by its
owner. Economic rent is the positive difference between the actual payment made for a factor of
production (such as land, labor, or capital) to its owner and the payment level expected by the owner,
due to its exclusivity or scarcity. Economic rent exist due to market imperfections. Without market
imperfections, there would be no need for payment of rent. Henry George (2014) describes the concept
of rent in economic as follows:

3 “In the economic meaning of rent, payments for the Supply

use of any of the products
–Demand and theofPhilippine
human exertion are excluded,
Economic Problems and
of the lumped payments for the use of houses, farms, etc., only that part is rent which constitutes the consideration
for the use of the land. He part that is paid for the use of buildings or other improvements is property interest, as it is
a consideration for the use of capital.”

In short economic rent is any unearned income.

Savings and Investment

Savings and investment are necessary to build the future. Savings is to investment as food is to the body
nourishment process. As food and nourishment process sustain body growth, so do savings and
investment to the growth of the economy’s productive capacity. But savings calls for giving up the
present in order to build up and, therefore, invest for a better future. Savings and investment are not
only the concern of business but also of households and government.

Investment is defined as building up the capital stock for more future production and consumption. But
the cost of investment is savings defined as postponed consumption at present. Behind the use of
money as exchange medium are the real activities of savings and investment, which are clearly seen in
households that produce for their own consumption (e.g., subsistence farmer). Say, a rice farmer wants
to produce a surplus and sell it in the marketplace to provide for his family’s other needs. To realize this,
he builds an irrigation canal from the river (investment) for planting and harvesting even during the dry
months. But this form of investment calls for giving up some week of planting resulting in foregone
consumption (savings) in exchange for greater consumption from the production surplus in the future.
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 However, the use of money as exchange and credit medium can maximize savings and investment.
While one constantly saves money for future use, another one spends on investment even befor
accumulating savings by borrowing. One can borrow and repay against future accumulated savings. The
credit system through its intermediaries, like banks link savers and investors who are not the same
persons. Thus, this access encourages savings to maximize its allocation for investment.

Even government borrows the savings of households and businesses to spend on capital accumulation.
Capital takes the basic forms of machineries, equipment and buildings and constructions. While business
builds additional factories that also create employments, households continuously accumulated fixed
assets like houses and cars for more services. On the other hand, government invests in physical
infrastructures like roads and bridges to encourage business activities. All these capital accumulations
redound to bigger productive capacity to sustain household consumption. The economy’s capital
formation (investment) has always been greater than savings since government investment is also
financed by taxes and at times, foreign borrowings.

Rent

The problem of unaffordable decent housing is the problem not so much of the middle class as the poor
due to poverty. Typical middle-class household members pitch in to afford decent housing rental and
eventual ownership. But the poor cannot afford decent housing at all, let alone they are not convincing
enough for housing loans without formal employment and paying capacity. Lacking skills they are self-
4 employed or not regularly employed. Thus, the Supply
poor–Demand
squat onand thepeople’s
other Philippinelands
Economic Problems
or rent squatter
housing in subhuman living condition they can only afford.

The poor spend more than their meagre income to make both ends meet. Nonetheless, they can hardly
provide even for their basic needs, which include housing. A typical poor family spends mostly on foods
and practically nothing on housing and other consumer items. Thus, poverty has isolated the poor to live
in slum areas crowding in shanties they do not even own. Even in worst condition are those at the
bottom thirty percent of family income earners who are the poorest of the poor as they live below
poverty line. Much less could they provide even for food consumption they many live in the streets and
other public places. In contrast, even the middle class can afford some savings and provision of their
other needs.

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5 Supply –Demand and the Philippine Economic Problems

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 Taxes

We pay taxes for government to provide public goods and services that empower and enable individuals
and institutions alike to pursue their dreams. One example of public good is farm access road for
farmers to transport their produce to the cities for the needed cash income. Another example is the
public school system to educate children of the poor families out of poverty. On the other hand, and
example of public service is restoring peace and order in war-torn areas in Mindanao by the armed
forces and police that all can resume normal life. Another example is the regulation of business permits
by the Local Government to prevent industrial overcrowding, which can dampen the incentive to do
business. In other words, we pay taxes for government to provide a better place where we can exercise
our freedom securely, fairly and progressively.

But taxes are yet our burden even as we ultimately benefit from the public goods and services we get in
return. Taxes can dampen the incentive to do business for the benefit of society as they can eat up
profit. An example is the usual income tax that diverts investment from new and vital products to those
we need less of. Pioneering businesses need some tax reliefs in the early stage of market exposure when
profit is still lean. Taxes can also distort savings, investment, and consumption as income earners shift
to substitutes to avoid the tax burden. An example is the high tax on interest income, which drives
income earners to put their savings instead in individually lucrative but socially unproductive real assets
like jewelries, idle lands, and the like. Ideally, tax benefit is maximized as its burden is minimized.

The main issue that hobbles the government to maximize tax benefit while minimizing its burden is the
6 shortfall of tax collections due to corruption. AsSupply –Demandhas
tax collection and the declined
even Philippinethrough
Economic
theProblems
years, the
budget deficit (sending over tax revenue) has correspondingly worsened. What us worst is that
government borrows from the public to make up for the deficit and stretch government spending.
Ultimately, repayment of public debts by drawing on the government budget only crowds out spending
especially on the more important public goods and services. Shortfalls of tax revenues and government
spending can mean less road maintenance, book for the public schools, medical services and medicines
for the poor, to name a few. On top of the shortfalls, corruption misallocates spending on the not-so-
important from the more important public goods and services.

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