Pros and Cons of a Strong Dollar for the Philippine Economy

If you’re earning a dollar currency, you would probably be ecstatic because of its higher exchange rate. But if you’re using the dollar to fuel up your business, having a higher exchange rate could mean a drawback or a disadvantage.

Economics is indeed a complex topic. It takes in-depth research and knowledge to understand the effects of foreign currencies like US dollars. Now, why does a dollar go strong and sometimes weaken? As an ordinary citizen, how will it affect you, when should you be wary, or how can you benefit from it?

Let us take you to a quick summary of the perks and drawbacks of having a strong dollar for the Philippine economy.

The Role of the US Dollar as an International Currency

The US Dollar has been the most widely used foreign currency for international trade. In fact, it has been the world’s primary reserve currency, also known as the global currency, since World War 2. 

According to International Monetary Fund (IMF), the US dollar makes up over 60 percent of all known central bank foreign exchange reserves. In the foreign exchange markets, around 90 percent of it involves the US dollar in forex trading. When it comes to world debt, almost 40 percent of it is also issued in US dollars. As a result, most foreign banks need a hefty amount of dollars to conduct business. 

Due to its high demand, the US Federal Reserve has to increase its dollar swap line to avoid running out of dollars and causing a financial crisis. Subsequently, this makes the dollar more expensive to borrow in the international market.

Strong Dollar vs. Weaker Peso

Meanwhile, the Bangko Sentral ng Pilipinas does not consider the currency's price will maintain its strength. But instead, the value moves dynamically due to economic developments. This means that the import surge increases the demand for foreign currency like dollars but also weakens the Philippine currency. That is why the Philippines raised its productive capacity on imports to maintain economic growth. 

On the other hand, a stronger dollar exchange rate also positively impacts the Philippines, especially for Overseas Filipino Workers (OFWs). Since they paid in dollars, their foreign remittances bring more value to their families. OFW families received more, which gave them the greatest purchasing power to spend on goods and services. 

The Pros of a Strong Dollar

Relatively, a strong dollar is advantageous for many Filipinos and foreign investors.

• Traveling to the Philippines is Cheaper

Traveling to the Philippines is cheaper for individuals like expatriates, OFWs, and balikbayans. A strong dollar can give them the capability to buy when converted to the Philippine peso, including buying a house and lot in the Philippines.

• Companies That Do Business in the US Earn More Profits

Business owners that venture into the US will likely get more benefits, especially if they have a large number of sales. Having a strong dollar can give them more profits. 

The Cons of a Strong Dollar

While it can be advantageous for many OFWs and other multinational companies, the strengthening dollar also features disadvantages to the Philippine local economy.

• US Companies that Do Business in PH are Hurt

US Companies that do business in the Philippines will hardly be hit since they are using the local currency. Despite their huge sales in the country, the value decreases when converted to US dollars.

• Exporters Suffer

Businesses that buy raw materials abroad will suffer from the strong dollar. In fact, some individuals lost their jobs to cut operational costs. An example of this is the oil prices increase. Many local companies utilize oil to run their business, such as transportation, machinery, and more.

What Does a Strong US Dollar Mean for the Philippine Economy?

Should the Philippines be alarmed by the recent increase in dollar value and its weak peso? The answer is No. 

Dollar strengthening is just temporary due to heavy US borrowings by the Biden Administration. These are unproductive spending, such as sending money and arm support to their endless war policies and expanding subsidiaries and freebies to domestic welfare to win more votes in the next US election. 

So, it will continue to depreciate and pressure other major currencies, including the Japanese Yen, British Pounds, and others. Thus, a strong dollar does not mean the US has a robust business environment. This economic trend will not last very soon, and dollars will be scampering out. Emerging markets will bounce back to normal, where the inflation rate is bearable, and energy prices will be much lower like European countries are experiencing now.

Therefore, the Philippines can take advantage of its good demographics, which we can pivot to other major countries that offer high-paying jobs. Note that most young Filipinos are English proficient and IT-literate, making them more employable than other foreign nationals.

Moreover, our country has good economic liberation laws in foreign direct investments (FDIs) and retail trade. Plus, the aggressive approach of the government’s infrastructure programs elevates the businesses to do ventures in nearby provinces.

Take Advantage of the Strong Dollar in Real Estate

Given that the dollar continues to increase its value, it is best to be viewed from a more positive perspective, especially in terms of investment. If you are quite adventurous or a risk-taker, now is the best season to invest in international stocks and get more bang for your buck. With a strong dollar, you can get higher dividend yields, lower valuations, and reduced volatility against future declines in its value.

But if you want a more tangible asset, invest in real estate, such as buying affordable house and lot for sale properties. Lumina Homes features affordable house and lot packages with low-interest rates in a livable community perfect for modern living and a retirement haven. Whether you’re an ex-pat, OFW, or a balikbayan, we offer quality homes worth the value for your money. Get in touch with your accredited sellers today in our 50 locations nationwide.