Trick question: Which of the following performed the worst against the US dollar year-to-date: Australian dollar, New Zealand dollar, or the Philippine peso?
Yes, you cheated by consulting a Bloomberg screen but you are right about the kiwi dollar. Here is the complete list of the unpopular currencies with their respective percentage slips from the dollar:
- Zimbabwe Dollar 43.06%
- Romanian Leu 26.48%
- Indonesia Rupiah 24.63%
- New Zealand Dollar 23.46%
- Philippine Peso 22.27%
- Australian Dollar 21.49%
- Ecuadorian Sucre 20.99%
- Turkish Lira 20.64%
- Hungarian Forint 19.12%
- Greek Drachma 19.00%
As can be seen above, one has to hand it to the peso – despite the country’s natural and man-made disasters, it is holding its might against the dollar.
Indeed, last week Philippine President Joseph Estrada gave a smart reply to an Australian reporter who asked why he is not resigning especially that the peso buckled under the weight of the gambling payoff allegations: “The Australian dollar is doing badly too, why doesn’t your prime minister resign?”
On October 31, 2000, the peso spiraled into another intraday record low of Ps51.950 by mid-morning with a corresponding volume of $12 million. The average weighted price at this time was Ps51.813.
Non-tariff barriers
The central bank governor, Rafael Buenaventura has introduced a non-tariff barrier last week when he required all transactions above $10,000 to be supported by valid commercial transaction documents such as import invoices.
In effect, the Bangko Sentral ng Pilipinas (BSP) arrested speculative transactions among the forex subsidiaries of banks with this onerous administrative requirement.
This smart tactic from the BSP drastically reduced the trading volume in the PDS but has not failed to prevent tiny but benchmarking deals.
Thin volume
At the opening trade, $1 million changed hands at the rate of Ps51.500 much weaker than the previous day’s close of 51.480.
By 11 am, with a total traded volume $12 million, the peso sank its intraday low of Ps51.950 which is another historical record for the currency.
By noontime, the peso recovered little with an average weighted price of Ps51.680 with a volume of $28.5 million. The last trade was done at Ps51.000. The PDS normally closes at 4pm but in observance of the big All Saints Day holidays on November 1 and 2, opened only in the morning.
What is the benchmark?
For a currency that trades at razor thin volumes of $28.5 million for the day, is this a reasonable market price? At what trading volume does one validate the correctness of a currency’s value?
This exactly is the inherent defect of a market-based currency pricing. What is market price? Is it the price at which small volumes are being sold? A peso benchmark set by a trading volume of only $28.5 is questionable.
Precisely, it is this particular imperfection of a floating currency that highlights the advantage of a fixed rate system such as that in Hong Kong.
Senate hearing
Meanwhile, the Philippine Senate continued its hearing on the allegations of a northern Luzon governor who accuses Estrada as the “Lord of all gambling lords.”
Yesterday, Yolanda Ricarforte, who is allegedly the accountant of Governor Chavit Singson, admitted to the Senate she handed over Ps200 million to Edward Serapio, the “President's lawyer and former undersecretary for political affairs.”
Singson alleges that the money was part of the gambling payoffs to Estrada.
The market blames this payoff allegations for the peso’s rapid descent in the last few weeks.
