Devaluation and Depreciation of Philippine Currency
Devaluation is the reduction of the value of domestic currency by the government under a
fixed exchange rate system. Conversely, under a flexible exchange rate system, depreciation is
domestic currency value reduction due to supply and demand in the market. Devaluation is the
deliberate effort to reduce a currency's worth in terms of another. For example, 1 USD = 55.81
Philippine peso. Therefore, the USD is 55.81 times stronger than the Philippine peso. However,
if the Philippine treasury devalues the currency using the fixed exchange rate system to 60 Pesos,
the US dollar may purchase more Philippine pesos. Filipinos will have to spend more money to
buy products or services with US denominations. A nation may devalue its currency for several
reasons. Increasing its exports is one of them. A government attempts to increase the cost of
imports and decrease the appeal of exports by depreciating its currency.
To persist with the discussion of the distinction between devaluation and depreciation of
currency, depreciation takes place due to market forces and under a flexible exchange rate
system. When there is a decrease in demand and an increase in supply in the market, the value of
a domestic currency declines. The term often seen in the news, "Peso seen weakening," is the
peso depreciating its value. The peso's depreciation raises the cost of imports. Still, sadly, there is
no significant domestic export response because the Philippines produces so little that the rest of
the world is interested in. The rising import bill offsets any alleged export gain.
It might be a thing to interchangeably use the terms depreciation and devaluation of
currency because of its similar feature of changing the numbers related to economics. However,
it is not difficult to properly project its differences and implications. When talking about
devaluation, it occurs because of the government and it includes value reduction in domestic
currency. On the other hand, when discussing currency depreciation, it is due to market forces of
supply and demand, which refers to the decrease in value of the domestic currency.
References
Africa, S. (2022, October 6). PH Peso: Catch Me I'm Falling. IBON Foundation. Retrieved
November 6, 2023, from https://www.ibon.org/ph-peso-catch-me-im-falling/
Jain, S. (2023, August 10). Difference between Devaluation and Depreciation. GeeksforGeeks.
Retrieved November 6, 2023, from
https://www.geeksforgeeks.org/difference-between-devaluation-and-depreciation/