(Good old days for the dollar! This was taken November 27, 2003. File photo from Agence France-Presse)
For the longest time, the dollar has been the darling currency of the world. In an earlier post, I asked if it was a doomed currency, but as a good friend pointed out, if it is really the end of the road for the greenback, why do its hiccups still affect world markets?
More and more, however, other currencies are starting to shine. So here’s a quick tip for overseas Filipino workers struggling with the weakening dollar: get paid in the local currency.
Of course, this will only work if you are not working or living in the United States. (Duh). Several of my friends, for example, work for Canadian companies. Instead of getting paid in the US dollar, which was the currency of choice for the longest time, they decided to get paid in the Canadian dollar. It proved to be a good plan as the US dollar slid continuously the whole year.
The information to look for are Peso Cross Rates. The best source of that information is the Bangko Sentral ng Pilipinas website. I was quite surprised how a simple strategy like this, if possible in the companies that you work for, can help with managing cash flows for overseas Filipino workers.
A simple analysis of the peso cross rates shows that if you simply compare the exchange rates in January 2007 with the monthly average exchange rate in February 2008, you will see that you would have lost almost P8 per US dollar but less than P3 for every other currency included in the central bank’s table, except for the Pound Sterling.
I asked Citibank retail bank director Agustin Davalos weeks ago and he said this was possibly the simplest, easiest thing to do to lessen the impact of the dollar’s depreciation.
If you want to get more technical about preserving your exchange rate advantage, there is currency hedging. Johnny Noe Ravalo wrote about this more extensively in his previous column. The biggest concerns among OFWs and businessmen about the currency hedging mechanism are the steep fees, so if you are planning to do it, make sure the contract price is worth it. Diagrams to help you figure out how it works below:
You can read his full column here.
Hope this helps! Always remember to stay on the right side of the road and keep smiling. Relaxing your facial muscles costs less than botox ☺
June 4th, 2008 at 3:05 pm
Russia became the latest in the list of countries that shifted a part of its Central Bank reserves from the USD. Sergei Ignatyev, chairman of the Central Bank, said that only 50 percent of its reserves are now held in dollars, with 40 percent in Euro and the rest in GBP. Earlier it was believed that just 25-30 percent of Russia’s reserves were held in Euros, with virtually all the rest held in dollars.
March 13th, 2008 at 9:50 pm
Its really amazing to see how simple the forex tips are,but I dont think you can benefit from it unless the currency of host country for ofw salary are not peg in US dollar.Like canada or euro ,yes it is possible but how about saudi riyal which was peg with US dollar.The fact is that we are loosing the real value of dollar in philippines because of forex trading between the host country and philippines.
How about the fees concerned with hedging.?
thank you so much for the info.
God Bless Philippines
March 13th, 2008 at 9:47 am
Congrats, Salve. Very nice and thought-provoking for OFWs in general and for me working in Japan in particular. Lemme share my thoughts here…
“Dollar a doomed currency” I think it’s headed that way as long as US Fed’s Bernanke thinks bailing out those miserable subprime mortgages is more important than the dollar’s purchasing power vs oil, wheat etc. Being “doomed” is a gradual thing, though, won’t happen overnight but we’ll get there anyway. Let’s look back at monetary history. In 1871 the Mexican silver trade dollar was doomed by the Gold Standard. In 1915 the Gold Pound Sterling was doomed by World War I. In 1940 the Pound Sterling was doomed along with World War II.
For once the BSP ended up smarter than the Fed - cutting rates just 0.25% vs 2%+ in order to stave off domestic inflation rather than stem the peso’s rise. For once being paid in non-$ currency (peso, euro, yen…) is fashionable again. Yen about to hit 100/$ anytime soon - hooray!
Your “peso cross rate” table is a bit misleading, it will be more revealing if losses are more properly measured in percentage terms. The US dollar sustained huge losses percent-wise against world currencies in general.
Currency hedging as discussed above is just a short-term tool so that businesses can remove uncertainties in purchasing machinery etc. in foreign currencies. But it can’t give wholesale relief from long-term trends on $ losing its purchasing power. Businesses and OFW’s have to realign their business models and career plans in light of this new reality.
The ones taking the beating now are OFW’s being paid in US dollars or $-pegged currencies like in HK and Middle East! Imagine uprooting yourself from your families only to sustain significant losses in purchasing power. Not to mention OFW Pinoys who might have fallen into the subprime mortgage trap. At least us folks in Europe, Canada, Japan are in relavitely better shape.
And advance happy 1st anniversary to Moneysmarts! May the force be with you