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Who is afraid of a strong peso?


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The government doesn't want the peso to rise too high---it works against both exports and remittances. I read somewhere that one option they were considering was borrowing dollars internally. 

 

Maybe they'll keep it at a tolerable level.

 

What exactly does that mean and how does it work?

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I say we start watching the Peso, something big looks like it is about to happen and the USD seems to be gaining ground on everything except the Euro in the last 3 days.

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Brucewayne

What exactly does that mean and how does it work?

The Philippines has USD stored away and to use those reserve dollars, they have to store Pesos in the place of the dollars.

Sort of a storage vault in case everything starts to crash and burn.

According to what I read last night, they have enough dollars in reserve to run the country exactly as it is for 11 months before they would actually be broke.

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Since the Philippines has it's own currency they have the ability to control it's value by printing more money just as the U.S. has been doing.  The Philippines is a resource poor country (in relation to the size of its population).  Its largest export is services in the form of remittances for OFWs and call centers.  They can ill afford to have their currency rise too high vs. their target markets.

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Thanks for the responses.  I understand about currency issue and money supply.  I understand about currency reserves, etc.  What I don't understand is the phrase: "... borrowing dollars internally."  However defined it seems like some sort of financial incest.

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Brucewayne

Thanks for the responses.  I understand about currency issue and money supply.  I understand about currency reserves, etc.  What I don't understand is the phrase: "... borrowing dollars internally."  However defined it seems like some sort of financial incest.

It's really simple, just use USD which are stored for emergency use only, replace the USD with Pesos and the need for USD will go up/Peso will go down.

The less Dollars there are here, the more the demand is and the value of the Dollar will go up against the Peso.

It is called borrowing internally because it can't be spent without being replaced.

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Ozepete

Since the Philippines has it's own currency they have the ability to control it's value by printing more money just as the U.S. has been doing.  The Philippines is a resource poor country (in relation to the size of its population).  Its largest export is services in the form of remittances for OFWs and call centers.  They can ill afford to have their currency rise too high vs. their target markets.

I have to strongly disagree. The Philippines is extremely resource rich it simply doesn't have the legislative policies, infrastructure, know-how or capital etc., to best exploit them. The days of the greenback buying more than p40 are numbered, expect US$1= p37 - p38 within a year or so. 

Edited by Ozepete
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dutchben

April and may the dollar will go up, every year the same, mark my words

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Brucewayne

Most of the easy money for the condo projects has already come in (Appx. 1-1/2 billion per year over the last two years) and the developers are becoming desperate to find buyers.

The Peso is already poised to raise soon and Aquino has already announced just that several days ago in an open letter.

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It's really simple, just use USD which are stored for emergency use only, replace the USD with Pesos and the need for USD will go up/Peso will go down.

The less Dollars there are here, the more the demand is and the value of the Dollar will go up against the Peso.

It is called borrowing internally because it can't be spent without being replaced.

 

 

Borrowing internally means temporarily removing money from the private and public sectors and moving it to the government sector.  (I specify temporarily’ because all loans are – or should be – eventually repaid.)   A government has a number of instruments that may be used for this, most of which rely on an attractive rate of return.   It is usually performed in the home currency and is a means of reducing the money supply and/or redirecting investment to government approved areas.  I have no difficulty in understanding this.

 

Borrowing dollars internally is however new to me.  Is this an immediate exchange of pesos for dollars or is it a conventional maturing loan over a period when peso interest and/or capital are repaid to the lender?  The terms of any such borrowing must encourage the lender or will there be legislation to ‘force’ lending?  Whatever mechanism is used, there will be the same number of dollars within the national boundaries after the borrowing as before.  This can have no effect on the peso to dollar exchange rate.  (And what does the government do in the long term with all those dollars?)

 

I will concede that having ‘withdrawn’ dollars from circulation there will be less dollars on the foreign exchange market.  Classical supply and demand theory suggests that this will tend to drive up the strength of the dollar, but will the effect be that marked?

 

So who in the Philippines has dollars and are they willing to participate in such a scheme?  I doubt whether the public sector has a significant dollar holding.  In the private sector, import/export organizations will be unwilling to part with any currency; currency exchange to such organizations is a cost.  There has been much hot money flooding into the Philippines recently and here is a source of unwanted dollars that might be available for borrowing by the government.

 

Just now the Philippine economy is very difficult to read;  there are conflicting economic indicators appearing almost daily: GDP is up but unemployment increases; hot money floods in but FDI is the lowest in ASEAN.  Even in this forum there are differing predictions.  Interesting times!

 

 

 

Edited by GoHuk
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Brucewayne

http://www.rappler.com/business/17524-ph-november-dollar-reserves-exceed-2012-target

 

This is the money Aquino intends to borrow from to pay debts.

The money can either be replaced by Pesos and exchanged for Dollars at a later date or the government can pay the debt in Dollars as they are accumulated.

His plan was to exchange Pesos for Dollars so the need for Dollars would be greater within the Philippines since the money borrowed in Dollars would be out of the country and spent elsewhere.

The Pesos would still be in the country, but would be intended to be used to used to replace the Dollars spent.

Either way, he says this is the internal loan he intends to pursue to lower the value of the Peso.

Printing more Pesos would have basically the same effect, but would be longer term and less controllable.

I heard the "Open Letter" speech on the Asian News Channel the other night, but have yet to find an internet link which mentions it as yet.

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