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The Shrinking Dollar Affecting Foreigners in the Philippines?

November 9, 2009 By Philly 9 Comments

A few weeks ago a reader wrote and asked for my viewpoint on how the “shrinking US Dollar” is affecting life as an expat here in the Philippines.  Truth is, for me anyway, the “shrinking dollar” hasn’t done that much shrinking here at all.

Life in general costs more and more every month in every country.  Pretty amazing to me that the US government has decreed that those of us who get government pensions from the DoD and Social Security retirement benefits are not getting even a penny increase for 2010 over 2009 … we all know that those figures are skewed to balance the budget on the backs of the “peasants” … but that’s politics and not economics, so I’m not going any farther down that road.

I’ve published a number of reports on what things cost in the Philippines, including a semi-regular updated detailed spread sheet of what my wife and I are spending.  I don’t update this all that often because frankly, not that much has changed.  My rent, electric, water, food spending haven’t changed all that much.

Food does cost more than it did 4 years ago, that’s for sure, but day-to-day, we’re living well on $1200 a month and saving money besides, just as we were 3 plus years ago when we moved here.  (I also am spending money to send a niece to school and to help out with some medical bills which are discretionary to me, so I don’t include them in any of my published figures).

But the question is really about the “weak dollar” and frankly I had to look things up to be sure I knew what my reader meant.  Turns out it is not an invention of Fox News:

Ten Years of Pesos and Dollars

Now of course that chart is a little “busy” and mostly too small to read here .. if you click on the graphic itself it should take you directly to the live chart on Yahoo .. you can see better and zoom in on certain features.  But here it is doing what a chart needs to do … give you and overall impressions.  It covers the US Dollar versus the Japanese Yen (green line), the Euro, (blue line), the Great Britain Pound (red line) and the Philippine Peso, (orange line).

It starts back in 1999 and basically shows you where to would be if you had a fixed income in US Dollars and had to exchange (sell) those dollars for a local currency at any point over the ten years.

While there were times during those ten years that it would have been great to sell for Euros or Pounds, time, the healer of all wounds and the wounder of all heels, pretty much averages things out … except for the Yen.  I lived in Tokyo for years when the Yen varied between 106 to the dollar a and 140 to the dollar.  Believe me, at about 90 to the dollar where it sits today, you would be really feeling the pain of a ‘shrinking dollar” in Japan today.

Overall on the GBP one would have about broken even in 10 years.  The Euro and the Yen, you would have taken a big hit … about 20% or so down over the decade.  So as Mythbusters would say if they ran a segment on the shrinking dollar, a big emphatic “Confirmed”.

But the Philippine Peso … how did it do?  You read the Orange Line for yourself.  If you started in 1999 and bought pesos with your US Dollars like I do, in ten years, in currency trading terms, you’d be an average of 20% ahead of the game.  That’s why the question about “weak dollar” gave me a little pause .. it hasn’t been weak to me at all.

To be sure there is a lot of fluctuation, but if you look at the peso and the 0% gain/loss line, there are only a few months out of ten years that a US Dollar foreigner would have lost even a penny buying Pesos for Dollars.

One Year of Pesos

Now when we look at a closer in time snapshot. here’s how the last 12 months have worked out.  A high of just thousandth of a Peso less then 50 to the dollar, versus a low of 44 something.  Looks like some tremendous fluctuations, in the past three years, if you translate my Peso ‘spend’ back into dollars, my monthly ‘needs have varied as much as nearly $500 USD.

So three quick lessons as I see them:

  • “Weak Dollar” depends on how you define it.  When the Peso is even weaker, the dollar still seems strong.
  • If you want “stability”, better not live outside the US.  There are no guarantees out here in the real world.
  • Plan your life style so that you spend less than you have available … you need a cushion.

All that being said?  I’m now into my forth year here and you would need a crowbar to get me out of the Philippines.  It certainly has worked well for my dear wife and I.  YMMV.

A note for my freinds who are ‘based’ in other currencies .. say Canadian dollars.  Go to: http://finance.yahoo.com/ and select the currency you want to compare with the Philippine Pesos and then select Yahoo’s Interactive Chart heatire .. yo can play all sorts of “what ifs”

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How Much Is That In Philippine Pesos?

October 30, 2009 By Philly 17 Comments

One thing I think a lot of my fellow Americans have trouble with is currency … money … moola.  No, not the problem of having month left over at the end of your money … that’s an age old problem that can happen to us all, from time to time.

What I’m talking about today is foreign money, that “coin of the realm” stuff, the money that’s different in almost every country on earth.

Whether they are thinking about moving to the Philippines or to any other country, a surprising number of folks I have talked to somehow have the idea that they will just continue thinking about expenses and dealing with bills and expenses in good old US “greenbacks”.  “I’m not interest in that Foreign Exchange stuff:, they will say.  “I’ll just use local currency on those rare occasions when I have to.  Foreign exchange (often labeled ForEx or Fx) is for the investors and big money types, not little guys like me.”

Well it’s fine to think that way … and I certainly don’t advise anyone to start splashing around in the currency markets, trading blocks of Dollars or Pesos or Euros or whatever.  But if you come here to live in the Philippines you will find out you “play” the Forex markets each and every day you wake up … and you are going to have to deal with at least two currencies in your day-to-day modest efforts at staying alive.

Actually the Philippines is much easier than a number of foreign countries to deal with this issue in, because it is legal to own foreign currency here, and you can open bank accounts in both Philippine pesos and US Dollars.  There are so countries that won’t let you even have another country’s currency, try to confiscate it at the border, so in that respect, we’re very lucky.

But even though I have a bank account specifically for my US dollar holdings here, and if I want to, I could go to the bank when they open this morning and draw out ‘real’ US dollars in my hand, this is still a country that runs on Philippine Pesos and there isn’t a lot I can do with those dollars except put them back into a bank, or hand them over to some third-party money changer.  I can’t go to the electric company and pay my bill there with them, I can’t hand them to a tricy driver or get food for lunch today at the market with them … regardless of my preferences, I have to deal with and think in Pesos each and every day. 

But the way, a question I get often is, “Can I get Pesos from an ATM with my US debit or credit card?  The answer is yes, in fact Pesos are all you can get from a teller machine in the Philippines (except for a few specific “inside the bank” machines in Manila, which I have been told about. nut have never seen).  “Now wait just a minute” I can hear a few people saying.  “My bank account in the US is in dollars, how can I get Philippine Pesos with that?”

Well that part is quite simple … but depending upon your bank’s policies and the agency they use for money changing, it could be expensive.  For example, here’s a snippet from my US bank transactions when I used my US debit card to get 10,000 Philippine Pesos out of a local teller machine earlier this month:

withdraw philippines pesos with a US debit card

 

On the day I made this Philippine ATM withdrawal the commercial bank exchange rate here in the Philippines was averaging so I should have paid about $ 212.59 over the counter at my Philippine bank for the 10,00 Philippine Pesos I received.  Instead, I paid $211.86 from my US bank account for the currency itself, $1.69 to Master Card for the privilege of transacting business across international boundaries, $1.00 to my US bank “just because” and $ 0.43 to someone in the change for a “Currency Conversion” fee.  The “effective exchange rate” to me then in reality was PhP 10,000/$ 214.98 or PhP 46.51 per US dollar.  That means I paid, in total $2.29 or am extra 0.014% on this transaction for the convenience of using my US debit card. 

If this seems a bit too detailed or even a shade on the ‘anal-retentive’ side for an every day transaction, fear not.  I usually don’t go into this sort of detail every time I need some Philippine Pesos in my hand.  But if you want to live here you are going to have to grasp these basics and at least work them out from time to time, especially on major purchases.  Or, you will spend a lot of your time here living in the Philippines wondering where the money went.  Over the course of a year, someone living in the Philippines on my optimistic $770 USD a month budget (see Live In The Philippines On $770 Dollars A Month? | PhilFAQS) would have lost nearly $130 or about 17% of a month’s budget if s/he did a whole year’s Peso changing in one “go”.  Not so insignificant if you are trying to watch the pennies closely.

So, did you catch the mistake in language I just made.  “Peso changing”?  “Money changer” is a common enough term, and no one will look at you cross-eyed if you use it, but it’s a term of convenience.  It’s used all the time but it really means something different than the definition of the words.

There is no such thing as ‘changing” money.  It does not happen.  To get Pesos if you have US Dollars in your hand you have to “sell” the dollars to someone who wants then and let them pay you in Pesos.  If you want dollars … let’s say you are making a trip home and want money for your trip from the airport to where ever you are staying, you need to “buy” dollars .. meaning you hand over the equivalent price in pesos for dollars that the vendor is asking, and s/he will had you back ‘real’ dollars.

I know it sounds a bit overly detailed to say there is no such think as ‘changing” the money when the transaction of buying and selling I just described is very accurately termed an “exchange”, but it helps, in my view, to be accurate in the terms at the beginning in order to understand more complex terms properly.

Here’s a current chart that illustrates some of the points I am making.  US dollars versus Philippine Pesos over the past three months.  In other words the US dollar’s value expressed in Philippine Pesos on any given day … actually the value changes many times a day, as often as each an every transaction.  The idea that there is an “official rate” for each day is another one of those “shortcuts” we use, and has a legal meaning in some cases after the fact … like at the end of the trading day in a particular country, but every time Dollars are sold for Pesos can be different than the last time Dollars were sold for Pesos .. it’s a free and open market and the laws of supply and demand are in full force.

Take a look at the figures below the chart from some extra illumination:

Chart for USD/PHP (USDPHP=X)

Last Trade: 47.35 Trade Time: 12:41PM ET Change: Up 0.22 (0.46%)

Prev Close: 47.135 Open: 47.165 Day’s Range: 46.99 – 47.44 52wk Range: 46.195 – 50.700

Bid: 47.35 Ask: 47.38

The most important figures on this page are on the last line above.  These figures change each and every time someone enters a sell order for Dollars.
60; At the end of the day you are going to have to think frequently in your home country currency, in Philippine pesos and in US dollars as (well if the dollar isn’t your ‘native’ currency or if you earn money online, which is almost always a USD transaction.)

Some interesting thoughts on the foreign exchange state of mind here.

You can also learn a lot of fascinating facts about the ForEx business here. 

(note, this leads to a sponsor’s page, if you buy something I make a commission.  However, feel free not to buy, there are some fascinating live action videos here that will teach you a lot.  You snooze, you lose, you learn, you earn ;-) )

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Foreign Exchange Philippines

July 21, 2009 By Philly Leave a Comment

Thanks for sticking with me folks.  I’m on the road and time and connectivity are spotty.  I’ll be home tonight and things will hopefully get back to normal.  In the meantime this site has had it’s highest single-day readership ever … wow, thanks to everyone for visiting.  I try not to flog too many things here on this site, but there is so much interest in this forex … (Foreign Exchange) subject that I thought this course might be useful to some. (Note, no it is not free, but it’s solid info and it is 100% guaranteed, so if you want to learn how money is made in ForEx (and do better than I have been doing "flying blind" you might want to look.)

Some months back my friend Bob posted an article on how we think, currency-wise, while living here in the Philippines.  Bob posed the question, do you think in Dollars )or Euros or Pounds or Yen or???) or do you think in Pesos? The answer is quite definitive.  Yes!

“What do you mean, yes, Dave”? I can already here a few folks saying … “which one is it”?  Well the truth is, you can live say in the US for years and never even give another country’s currency a thought, but if you live here in the Philippines and your income, your savings, your real estate or even just someone you send Christmas cards to are in your home country, you are thinking “foreign exchange’ virtually every day.

Many are going to say, foreign exchange?  That’s complex, that’s big money, high-en investor stuff, not for me.  It is true that many big market players work the foreign exchange (or forex) market for a source of income.  And it’s big, larger by far than any one country’s stock market.  The forex market is also the most world-wide .. the forex trading day starts with the opening of the new Zealand exchange (Sunday night US time) and runs until Saturday night US.  6 days awake, rain or shine, almost every day of the year except perhaps New Years.And what does this market do?  Easy of course, it changes money from one currency to another, right? 

Well, not exactly.  Technically there is no such think as changing or exchanging currently.  You have currency of one country and you want currency of another country, you sell the currency you have and you buy the currency you want to wind up with.  It’s buying and selling, just like stocks or making a living with used cars.  The difference between Forex and almost any other market is, you never convert what yore selling into cash and then hand over the cash for something you want to buy … you sell your (for example) US dollars to a currency exchange in the Philippines who buys them from you for an agreed number of Pesos per dollar.

You can make this sort of transaction at almost any bank, at large shopping malls (one of the reasons the SM chain of stor4es is well-liked is they have easy and fast currency exchange windows and they give fair and decent rates, so you don’t have to deal with street vendors and other shady money changing characters (whom I do not recommend).  You are always thinking in both dollars and pesos here in the Philippines.  Here’s a little practical example example.

Foreign Exchange Loss A few weeks ago my wife and I bought a piece of furniture.  Came up to about P18,000.  On the day we bought it, I could have walked downstairs in the mall to my bank and withdrawn Philippine Pesos from my Peso Savings account, or I could have withdraw US Dollars from my Dollar Savings account and sold those dollars for pesos, or I could have done 9as we decided to do on that day) charge the purchase on our Philippine pesos credit card.  

Mainly for convenience, we charged it.  Now I kept in my mind the fact I needed P18,000 sometimes before the 27th of this month, when the credit card has to be paid off to avoid interest payments.  So I watched my favorite tool, Yahoo’s currency page until I judged that the peso was likely as high against the dollar as it was likely to go before the 27th … in other words, when I could buy the most pesos with each of my US dollars.  I made the move last Friday, for several non-financial reasons (such as we’re going on a trip for a few days).

Went to the bank, withdrew $1,500.00 US Dollars (I needed Pesos for a bunch of other reasons too) and asked the teller to give me the money in Pesos. I signed two other pieces of paper aside from my withdrawal slip, to comply with Philippine central bank regulations, and my teller handed my my Pesos in short order.

On Friday my bank was offering to ‘sell’ Pesos at 47.905  and so the teller handed me P71,857.5 … a nice healthy stack of P1000 notes … the largest bill in the Philippines.  Simple, quick, easy, but profitable?  Not very.  Check the chart and see where the Peso/Dollar rate was on Monday of that week.  I could have gotten P72,607.5 if I had bought Pesos then .. the difference?  750 Pesos.  A difference of a bit over $15 USD.  Not all that much of a loss, but if you consider that P750 would pay my monthly cable bill and my cell phone bill for the whole month of July, I really timed my move wrong.

A lot of folks tell me, oh that exchange stuff all to complex for me, I don’t even think in Pesos … well fine … everyone should think as they like, but if you choose to live here, you’ll pay close attention to both dollars and pesos .. or your bank account balances will do it for you.

Essentially I have found that in this world you have to learn in order to earn, and you learn nothing for nothing.  (Note, no it is not free, but it’s solid info and it is 100% guaranteed, so if you want to learn how money is made in ForEx (and do better than I have been doing "flying blind" you might want to look.)

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