Explainer: Myth of a strong peso

There have been lot of speculations concerning the strength of the peso relative to the United States dollar and other currencies lately. Does it signify the relative strength of our economy as it competes with similarly stronger economies? Or, has the country achieved a certain level of stability that it has become pretty firm and secure as it traverses the path of economic development; that fluctuations of currencies as this one is seen as a mere challenge and not a threat to local economic strength?

A stronger peso implies quite a few and significant conditions, which can be both negative and positive. A case in point is that a stronger peso could be positively interpreted as an active local economy buoyed by vigorous local production activities. A strong peso implies a stable currency supported by robust economic activity by the government and private sector. This may also imply a relatively higher value of US dollar against the peso. To a limited extent, a strong peso infers affordable value of import products, particularly raw materials purchased from foreign sources that are essential components of local products.

A stronger peso implies quite a few and significant conditions, which can be both negative and positive.

On the other hand, a stronger peso could be negatively implied as leading to negative trade balance or more aptly called as a trade deficit, considering that local export products become relatively expensive as a result of a strong peso. Foreign buyers will shy away from buying local products because of a strong peso which may lead to an oversupply of export products or worse, a supply glut. To a limited extent, it is a matter of prioritizing our options on whether we are to favor the local market or the international market. Or better still, are we for long term stability or otherwise?

It is a matter of prioritizing our options on whether we are to favor the local market or the international market.

Local interest rate despite being historically low compared to the previous year at around 1.6 percent which also complements February inflation rate at less than 1 percent, remain unappealing to investors. Investment remains stagnant but can hopefully recover by the second half of the fiscal year. Regardless of who is the new occupant of the seat of power, the next two years is a status quo as far as the local economy is concerned.

Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. For comments email: [email protected]