I mentioned briefly about paying attention to the exchange rate when I talked about inflation a few weeks back.
When I first started outsourcing to the Philippines in 2005, I had no idea what the exchange rate was. I just paid this agency $750/month and I had a full-time person working for me (Joven).
When Joven left the agency and came to work for me, I paid him $500/month, which was double what the agency was paying him. Win-win.
Then, a couple years in Joven emailed me and said:
“Sir, I don’t know if you know this or not but the Peso is at Php 38 to 1 USD. When you started paying us it was at 50. We’ve had a 20% pay cut because the dollar is struggling.”
I had no idea and I felt terrible!
They were struggling financially because of the US economy crash of 2007.
I started paying them more to make up for the difference.
I also started paying attention to the exchange rate.
Global inflation has made the exchange rate more volatile over the past 2 years. Before the pandemic, the Philippine peso to US dollar exchange rate was between Php 50 to Php 52 to 1.00 USD. Now, it fluctuates between 47 to 56 pesos per dollar.
That difference of 2 or 9 pesos is nothing for us. Nine pesos is roughly worth 20 cents. You can’t buy anything for 20 cents.
But in the Philippines, a dollar that costs 47 pesos and a dollar that costs 56 pesos is a big deal.
Let’s say you have an OFS, and you’re paying that person $600. Let’s convert that using the lowest exchange rate between the Philippine peso and the USD in the past 5 years: Php 47 to 1.00 USD. At that rate, their take-home pay comes out at Php 28,200.
Now let’s convert that $600 USD using the highest exchange rate so far (Php56 to 1.00 USD), which comes out to Php 33,600.
Php 28,200 vs Php 33,600.
That’s a difference of Php 5,400, worth around $100. That’s 1/6th of their income. That’s $100 that could have gone to pay for this month’s internet, water bill, or groceries.
Some employers get around this by paying in pesos instead of dollars. The problem with this approach is that you really have to pay attention to the exchange rate.
What I do is just monitor for big changes in the exchange rate. If there’s a really sharp dip, that’s when I send a little more. My team tells me they also monitor the exchange rate to get the most out of every dollar.
Like, for the past few weeks, the dollar has been really strong, so my team is actually getting more even though I’m not paying them more.
As I write this, USD is at 56 Php. But if or when the Philippine peso strengthens in value, that situation could change.
Look, I’m not saying you need to look at this every day. It’s just something to be aware of.
You can always see the exchange rate by searching “USD in PHP”.