Currencies and Consumers 101

CONSUMERS DEMAND!
Herman Tiu Laurel
8/8-14/2011



Our currency fluctuates in value simply because the value of the US dollar, which the peso follows, one way or another, also fluctuates.

But is that the case for all currencies or moneys?

Market Forces
Unfortunately, for many laymen, it somehow gets convoluted even when, actually, the answer is “No.” Not all currencies fluctuate just because the dollar fluctuates.

Some currencies, like the yuan of the People’s Republic of China and the ringgit of Malaysia, don’t fluctuate as wildly as our peso does. That’s because the governments of those two countries exercise currency controls to decide on how they want their currencies to be valued.

In contrast, monetary authorities in the Philippines depend on so-called “market forces” and intervene only by buying or selling dollars in our local market, to the detriment of many consumers.

Mainstream newspapers reported a few months ago, “Aquino: Strong peso sign of improving economy.”

If it were only that simple, then we wouldn’t have heard the clamor of an overwhelming majority of our country’s economic sectors -- from exporters, OFW families, business process outsourcing (BPO) firms, among many others -- for government to do something about the appreciating peso.

Imports can be Cheaper
Does P-Noy know that when the peso appreciated against the dollar as the US was theatrically locked in its “debt ceiling impasse,” Filipino OFW families, BPOs, and exporters lost P70 billion for each peso's rise?

That means, when our currency appreciated by two pesos the past week, all three sectors sustained a staggering loss of P140 billion.

No wonder our OpinYon colleague Liza Gaspar, who earns by helping Canadians and Americans fix their tax and finance chores via the Internet, claims to have lost half her income already.

The supposed benefit from an appreciating peso and a devaluing dollar is that imports would become cheaper.

But, as our regular e-mail correspondent Ferdie Pasion heatedly complains about, fuel, electricity, water, toll fees, transport, and other consumer basics, which have foreign exchange components, don’t go down at all.

And that’s the other half of the loss of purchasing power which the likes of Liza Gaspar complain about, too.

What’s Eating our Pockets?
Why is it that despite the appreciation of the peso, inflation continues to zoom to stratospheric heights, eating up Filipino consumers’ pockets?

Finance Secretary Cesar Purisima was heard explaining, “Old stocks (of fuel and oil) bought at the previous exchange rate” are to blame.

But then, when the exchange rate goes down in favor of lower imports, the international oil behemoths and speculators find a new way to raise prices either by using war or the latest shortage scare as an excuse (always manipulating the situation to their advantage).

Another problem with the fluctuating exchange rate, or the “floating currency exchange” rate (versus the controlled currency exchange rate), is that the speculators (bankers and investment managers alike) take advantage of or create the fluctuations themselves to earn windfall profits.

By the way, most of our monetary managers are themselves former bankers, fund managers, or executives of such speculating companies.

Paradise for Fund Managers
After the recent dive of the dollar, this report came out in the papers, “Peso declines after investors book profits… THE PESO took a breather from its northward trek against the dollar after investors took profits.

“The local currency shed 22.5 centavos to settle at P42.15 per dollar yesterday against its P41.925-per-dollar close last Monday.

“Traders yesterday said investors took profits from the peso, which surged to as high as the P41-per-dollar territory on Monday, after they flocked to emerging markets amid the euro zone and US debt problems.”

Right now, the Philippine economic and financial system is designed as a paradise for bankers and financial speculators, where these financial managers are a protected species.

Filipino First
The top honchos of the Department of Finance and the Bangko Sentral ng Pilipinas (BSP) were with Gloria Arroyo then, but are now as much with P-Noy.

BSP Gov. Amando Tetangco has just gotten another six years despite the dismal performance of his institution in protecting Filipino citizens and consumers from the ravages of international financial scams, such as the 2008 crash and current currency gyrations.

For a sure answer to all these peso-dollar problems, Filipinos only need to look back at the “Filipino First Policy” of President Carlos P. Garcia.

Back then, he, along with Central Bank Gov. Mike Cuaderno, maintained “currency and capital controls” to maintain the value of the peso at a level consistent with the welfare of the economy, the people, and the national economic development plan.

Such policy of “currency and capital controls” was the same thing that saved Malaysia from the ravages of the 1997 Asian Financial Crisis caused by the attack of mega-speculator George Soros on the Thai baht and other Asian currencies.

Mahathir was Right
The IMF-WB, Time, Newsweek, Fortune magazine etc., and, locally, the late Max Soliven, Alex Magno, the Habitos and Paderangas, all lambasted Mohammad Mahathir, whom I probably was the only Filipino writer to defend.

Before long, Mahathir was proven right as his country sailed through the financial storm, safely docking as one of the premier economies of the ASEAN.

But, to institute currency and capital controls, one must have an enlightened, competent, and militantly nationalist political leadership alongside a banking system that is firmly under the control of that leadership.

If not, massive leakages (such as the capital flight instigated by the Makati-based banks during the time of Marcos) can only follow.

When Usury was a Crime
Unfortunately, mainstream media and the educational system in the Philippines have kept the Filipino public illiterate on matters of national finance by continuously conspiring to create the wrong impression that such matters are best left to “experts” (like Winnie Monsod and company).

They deliberately obfuscate the basic principles and issues to make the population blind and acquiescent even when the financial system and the economy adversely affect them.

Remember the term “usury” that was once taught in school as a “sin” and a “crime” against our national laws? Now that’s been forgotten.

We need to restore such an understanding as the basis of a productive, dynamic, and fair Philippine economic system.

A revolution of the mind is needed to provide the impetus -- leading to a nationalist leadership that will reinstitute “currency and capital controls” for the nation’s good.