NO human has won a chess tournament against a high-specification computer since 2005.
It is nearly impossible to have an objective discussion about the peso-dollar exchange rate. Virtually every opinion on whether the peso should be stronger or weaker–regardless of what the current rate might be- is based on biased self-interest. If you are buying baby formula or scotch whiskey, you want a stronger peso to reduce the cost of imported goods. If you are getting birthday cash from your relatives in the United States, you want a weaker peso.
However, the exchange rate of our currency is dependent on global money flows as well as money coming in and out of the Philippines. The exchange rate value of the US dollar is most accurately measured by the US Dollar Index (USDX), weighted against a basket of other major currencies.
Since the dollar is the reserve and the most widely used currency in the world, looking at the historical price of the USDX against the backdrop of global financial events may give some insight whether it is better to have a strong peso or a strong dollar.
In the early 1980’s, Latin America, primarily Brazil, Argentina, and Mexico, were all hit with a debt crisis from too much foreign currency borrowing. Too much debt is bad; we all know that. But the crisis of debt default was triggered when the USDX hit a major high.
Conversely, the 1987 “Black Monday” American stock market crash came as the USDX reached an extreme low.
Japan’s stock market and economic high coincided with the USDX high in the late 1980’s as did the Asian financial crisis in 1997. The US dot-com stock market bubble burst at a USDX high; the US economy went into a recession at a USDX low. The current global financial crisis came at a dollar high; the US credit rating was lowered at a dollar low.
Even with all these examples of the correlation between dollar highs and lows coming at particular economic turning points, there is no way to say that one caused the other. While the debt default problems came because of too strong a dollar, there were many other factors that pushed the dollar higher and pushed those countries into other economic problems.
But we do know this. The exchange rate of the dollar has been controlled by the US Federal Reserve since the 1970’s during the term of Fed Chairman Paul Volcker.
A human cannot beat a computer at chess because the machine has the power to look at a thousand times more possible outcomes of any particular move. Central bankers that move the currency exchange rate to create the outcomes they desire are just as bad as humans playing chess against the computer.
The free market is like the computer when it comes to setting currency exchange rates.
Strong peso or strong dollar; let the market decide which is best for the country.
Image credits: Jimbo Albano