How do exchange rates affect the exports and imports of a country like the Philippines?
Answer (2)
Weaker Philippine Peso (Depreciation)Makes Philippine exports cheaper for foreign buyers, which can boost exports. However, it also makes imports more expensive, increasing the cost of foreign goods and possibly leading to inflation.Stronger Philippine Peso (Appreciation)Makes exports more expensive and less competitive abroad, which can reduce export demand. At the same time, imports become cheaper, encouraging more purchases of foreign goods.In short, a weaker peso favors exports but hurts imports, while a stronger peso has the opposite effect.
Exchange rates determine how much one country’s currency is worth compared to another. In the Philippines, the exchange rate is most often compared to the U.S. dollar. For example, ₱56 = $1 means one dollar can buy 56 pesos. Exchange rates affect the price of our exports (products we sell to other countries) and imports (products we buy from other countries).When the peso depreciates or weakens (like going from ₱50 to ₱60 per dollar), it becomes cheaper for foreigners to buy our products. For instance, a $100 order of dried mangoes can now buy more than before. This can lead to more exports because Philippine goods are more affordable to international buyers.On the other hand, a weaker peso makes imports more expensive. So when we import oil, gadgets, or cars, we have to pay more in pesos. This can lead to higher prices locally, especially for imported goods.Conversely, if the peso appreciates (becomes stronger), our exports become more expensive for foreigners and might decrease. But imported goods become cheaper, which can be good for consumers but may hurt local producers who can’t compete with cheap imported items.For example, during times when the peso weakens, OFWs benefit because their dollar remittances are worth more in pesos. But local businesses that depend on imported raw materials might struggle with rising costs.Therefore, exchange rates have a strong impact on the economy’s net exports and inflation. The government and the Bangko Sentral ng Pilipinas monitor this closely to keep trade balanced and inflation controlled.
