The title of an Inquirer.net article today (November 27) says it all: “Peso seen reaching 38 per dollar in ’08.” The article actually cites a projection by Banco de Oro-EPCI chief strategist Jonathan Ravelas who argues, “Strong OFW [overseas Filipino workers] remittances, along with portfolio flows, will help keep the currency on the stronger side.”

This projection is consistent with the currency forecasts of BNP-Paribas, one of the largest international banking networks. Please feel free to analyze the data below.

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From the data above, you will notice that even a big international banking network projects the peso to be pegged at P30 per US dollar by the fourth quarter of 2009.

With the exception of Hong Kong, there appears to be a general strengthening of the foreign currency exchange rate in other Asian economies until 2009.

Believe it or not, I fully support a strong peso. That’s not to say, however, that this is a sign of an improving economy. In analyzing the country’s economic history, we all know the complications brought about by our dependence on the United States in terms of investments and trade and its control over our vital industries.

In the short term, I believe that a strong peso can provide enough justification for consumers to demand lower prices of goods and services. In studying basic principles of economics, we are aware that a strong currency theoretically translates to lower cost of imported goods and services. Given the country’s import dependence (to the point where most of our goods and services have imported content), we should see a general decline in prices.

Families of overseas Filipino workers (OFWs) may not welcome a strong currency since this would mean less pesos to be exchanged for the precious dollars sent by their loved ones.

However, a weak currency that results in more pesos in exchange for dollars will also give rise to increased prices of goods and services, most of which are imported. This means that whatever increase they would get from a weak currency will be negated, at least in the immediate future, by higher cost of living.

The exchange rate also has a direct effect on fiscal management. For more details, please read the two articles I recently wrote in Filipino for Pinoy Weekly on the strengthening of the peso: “Ang `problema’ ng lumalakas na piso” (Aug. 16-22, 2006) and “Sana’y lumakas pa ang piso at bumaba ang presyo” (Nov. 21-27, 2007).

Your comments will be greatly appreciated. Thank you for reading!