On Monday, March 18, 2013, it was reported that the Philippine Peso weakened as an effect of the announced radical bailout plan on Cyprus. While it seems unlikely that an event this far from the Philippines should affect it economically, it seems that investors have shied away from risky assets and investments because of the possible fallout from this move in Cyprus.
The Republic of Cyprus is an island country to the east of the Mediterranean Sea. In wake of the financial and economic disaster that is Greece, many economies within the Eurozone were negatively affected and that included Cyprus. Cyprus was very heavily exposed to Greek debt because of having large bonds holdings of Greek debt in both the public and private sector. Thus, once the crisis broke out, the value of the debt that Greece had massively devalued and thus harmed Cyprus bank standings as they stood to lose over €3.5 billion euros. As expected, this was a huge blow to their economic standing and thus they are now scrambling for a solution to the crisis they now face.
Recently, a bailout plan was proposed for Cyprus after the country approached the European Commission, the ECB, and the IMF for aid. It was proposed that bank deposits €100,000 and less would get taxed 6.75% while deposits greater than €100,000 would be taxed at a rate of 9.9%. Of course this resulted in a bank run but it appears the Cypriot government didn’t exactly think that through.
But how does this affect the Philippine Peso? On Monday, the PHP was reported to have lost 8.5 centavos off its value as investors moved towards more secure and less risky investments. While the Peso decreased in value, it should be noted that this move by Cyprus has also negatively affected other currencies in the Asian region. Philippine stocks were also negatively affected, falling to 118.42 points or 1.78%, its largest decline since the year started.
It seems however, that the negative effect on the Peso was short-lived. As of yesterday, March 19, 2013, the Peso recovered some of its value as investor fears regarding Cyprus declined. According to an unnamed trader, “The peso slightly recovered today as most currencies, the euro included, rebounded after investors’ overreaction to the Cyprus debt problems waned.”
There are both ups and downs to a fluctuation in currency value. While many may see the devaluation of the currency as a negative event, it may prove beneficial at times especially for firms dealing with Philippines Property Management, Philippines real estate consulting and research, and property management in the Philippines especially if they serve foreign clients. If the currency devalues, this means that foreign investors will have higher buying power and thus have a greater ability to invest in the country because of their currency’s strong position.