Saving in Pesos or US Dollars

Your decision on whether you should keep your savings in pesos or dollars depends on your financial status and goals. This becomes clearer when you make your Statement of Asset and Liabilities (SAL) and Personal Income-Expense Statement (PIES) and write your financial plan.

If your plan requires that you spend in pesos in the future, there seems to be no reason for you to keep dollars for your savings.  Aside from this, dollar placements have lower interest rates compared to the Philippine inflation rate.  You should always earn a higher rate than the inflation rate to make your money grow.  Otherwise, your savings will stay the same or even go down.

Because of this, you will only gain from investing in dollar placements if the Peso-Dollar rate continues to decline at a rate that will more than make up for the low dollar interest rates.

Foreign exchange is a tricky subject. As in any investment, spread your risk. You should not put all your savings in foreign exchange unless perhaps you plan to live abroad. You must be very clear on what you want to achieve every time you invest. Pay close attention to the amount you expect to earn and the period of time you expect to achieve this.

FOREX Trading

Foreign exchange (FOREX) trading is an activity where one can make money buying and selling currency.  The differences between the buying and selling prices are very small, measured in centavos.  The trader makes money in the volume of trade.  Thus, the capital needed to enter this kind of activity should be substantial to make it more meaningful.  Furthermore, there are major risks involved such as: 

1. FOREX can fluctuate by the minute and a trader must be sure that he is selling higher than his buying price each time.
2. Risk of non-payment by the buyer.
3. Being known as a trader adds to his and his family’s security risk.

Conversion from dollars to pesos or vice-versa could result in gain or loss depending on when the conversion is done.  Unfortunately, there is no one in the world who can tell how the exchange rate will move in the future.

Note that the FOREX went all the way up to over PhP56 in October 2005 and went all the way back down to less than PhP43 in a few months ago.  I strongly suggest that the ordinary income-earning Filipino should not speculate in FOREX. It is only for the experts who have the resources and the experience.  Much like gambling, those who claim to make money can easily lose this in the next round.