Currency changes always have an impact on a nation. However, they’re mostly felt on a bigger scale rather than the smaller scale. For an average person, a cup of tea costs the same every day. By the same token, the mortgage and salary of a person remain almost the same every month.
The change in currency or currency fluctuation is only felt if you’re dealing internationally or planning a foreign trip. It could also impact you if you’re buying something from a foreign website. However, this is still not the bigger picture. If you look at it from a broader point of view, you’ll realize that currency has a tremendously deep impact on our lives and economy. In this article, we explore how changes in the Philippine Peso can impact you and your business.
Fluctuation in Salaries
If you run a business that involves employees from another country or even foreign exchanges such as the exportation or importation of goods, then your budget is likely to be disturbed whenever the currency of the other country or your country changes. If you run a business inside the Philippines and the Peso fluctuates, it can either benefit you or lead to a loss. If the currency rises, you have to pay less for imports, and you’ll get a relatively higher payment for exports. However, if the currency falls, you’ll likely pay more for imports and receive less from exports. Nevertheless, it also depends upon the country you’re doing business with. If you have online employees from other countries, it will also affect them as the fluctuation in Peso will increase and decrease their salaries.
Effects on Inflation and Interests
The currency of a country can have a huge impact on its inflation and interest rates. A relatively weak currency can give rise to the inflation rate in a country that mostly imports its goods. This happens because countries that are big importers and have a weak currency have to pay a relatively high amount for buying foreign products. Hence, it forces the state bank of the nation to put a high rise in interest rates to try and counter inflation. This will also save the falling currency from falling drastically and catastrophically. On the other hand, a stronger currency will depress inflation and interest rates. If the Philippine Peso rises, it can have both positive and negative impacts on your business. It depends on if you import more goods or export more goods.
Currency Fluctuation and The Job Market
A weaker currency of a nation can also lead to economic growth in a way. This is accomplished by exporting more goods and raising the import prices. It forces customers to buy more domestic goods rather than import them. A swift and quick economic growth results in a better employment rate. However, an appreciating domestic economy affects the other way around. It will slow economic growth in a sense and hinder employment prospects. Invariably, a currency can directly impact the job market and opportunities.
Foreign Exchange
Currency exchange holds immense importance for smooth and steady business growth. It can be rather confusing, and minimizing the risk of currency exchange and finding the best route to make and receive payments is of the utmost importance. If you run a business that deals with foreign exchange, you should have experts to guide you when it comes to the currency risk management involved in the transactions. Many platforms out there provide risk management services. Business payment optimization and currency hedging strategies also play a pivotal role in the steady growth and success of a business. With international trade on the rise and new businesses being established, you need to ensure you have the best foreign exchange and management services.
Currency Effect on Investments
The fluctuation of the peso will greatly impact your investment portfolio, even if it’s just domestic investments. To get a better understanding of this, we’ll take the US dollar as an example. A strong dollar will obviously saturate the whole world’s need for merchandise. This is because this merchandise is usually traded in dollars. This lower demand will prove to be beneficial for local merchandise producers. However, there’s also a drawback to it. However, it also has a drawback as it’ll mitigate the local currency, which is much weaker. A much stronger and more appreciating currency also greatly affects the trades made overseas. Making investments in securities that are denominated in an appreciating currency can boost the returns. However, investing in denominated securities in a depreciating currency trims the total returns.
Capital Flow
As concluded above, the currency of a country has a direct relation with its economy. Foreign capital usually flows to countries that have a strong currency and dynamic economy. For a country to attract capital from foreign nations, it needs to have a strong and stable currency. If not, then the exchange rate losses that are inflicted by the depreciation of a currency will be a major factor for overseas investors. Basically, there are two types of capital flows:
- Foreign direct investment
- Foreign portfolio investment
In Foreign direct investments, investors take shares in existing companies or build new facilities. On the other hand, in Foreign portfolio investments, investors buy, sell, and trade securities. Both of these are highly dependent on the currency of a nation.
The Philippines peso has made a great comeback recently. Due to the Coronavirus, economies across the world plummeted. Such is the story of the Philippines Peso, yet it made a great comeback. The peso rose by approximately 4% in the last year. Because of this, investors are looking for greater yields in the Philippines. The currency of a nation is a huge factor in determining the growth and success of a nation and its economy. Fluctuations in the currency dictate the foreign exchange rates, which affect businesses. Furthermore, investments coupled with inflation and interest rates depicts how the capital will flow in or out of a country. The job market is also directly related to the currency of a nation. In essence, the currency of a country drives its economic growth and success.
