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.

Review of Relationship between Peso and US Dollars

Paper money was born out of the need to find some medium that was acceptable to all, easy to carry, can be stored and can be measured.   The government of each country would have gold and silver stored in their vaults and on the basis of these, would issue paper money.  The value of the paper money of each country was then based on how much gold and silver the country owned.  This was when the world economies was using the gold standard as the basis for determining the relative values of the currencies of the countries engaged in exchanging goods and services (world trade).  The rate of exchange between and among these currencies was thus determined by the prevailing value of gold.

In 1945, right after World War 2, the victorious countries met in Bretton Woods and collectively decided to use the US Dollar as the international currency of exchange.  At that time, the countries agreed to base the value of One US Dollar to $35 per ounce of gold.  Since then, most countries including the Philippines, have pegged their currency to the US Dollar.  This means that even if we trade with countries, other than the U.S., when we pay them, we have to use the US Dollar as the basis for our payment.