Philippine Peso (PHP): Definition, History, Exchange Rate Range

What Is the Philippine Peso (PHP)?

The Philippine peso, abbreviated as PHP in foreign exchange (forex) markets, is the national currency of the Republic of the Philippines. The peso is known as the "piso" in the Filipino and Tagalog languages.

The Philippine peso is made up of 100 cents or "sentimos" and is often represented with the symbol ₱.

As of Jan. 9, 2022, one U.S. dollar was equal to 51.38 PHP. Over the past five years, its value has ranged from lows below 48 pesos to a dollar to a high of 53.89 in late 2018.

Understanding the Philippine Peso (PHP)

The southeast Asian archipelago now known as the Republic of the Philippines was under Spanish rule for 333 years and under U.S. rule for 48 years. It was occupied by Japan from early 1942 until Sept. 2, 1945, when World War II ended with Japan's surrender to the Allied forces.

The independent Republic of the Philippines was created in 1946. English and Filipino are the official languages.

Colonial Rule of the Philippines

The country briefly gained its independence in 1899 after a revolution against Spanish rule led to the creation of the First Philippine Republic. The Republic was short-lived. By 1901, the United States had annexed the Philippines as part of the treaty with Spain that ended the Spanish-American War. The U..S. sent in military forces to defend its claim to the Philippines against the nation's nationalists, resulting in the three-year-long Philippine-American War.

By 1901, the first coins and paper money issued by the Philippine government had gone out of circulation.

The U.S. then established a Philippine currency that was pegged to the price of gold, and was at that time worth about half the price of a U.S. dollar (USD). The peg of ₱2/USD lasted until the country achieved independence in 1946.

The Republic of the Philippines

The Central Bank of the Philippines was created in 1949, and through the 1950s it strove to maintain the 2:1 peg with the USD. This became impossible as a black market for pesos started outside of the fixed system, where the ₱ routinely traded at 3:1.

The currency was devalued to ₱3.90/USD, and in 1970 was devalued again to ₱6.43/USD. While the country struggled to stabilize the exchange rate, the currency continued to devalue. In 1983, it traded near ₱11/USD and by 1986 it was near ₱20/USD.

The New Central Bank Act of 1993 set the Philippine peso on a path to being a free-floating currency. While this allowed the exchange rate to become substantially higher than the earlier pegged levels, it brought stability to the currency. The black market for the currency (which nearly always reflected a lower value of the ₱ than official channels) ceased to exist.

Example of a U.S. Dollar/Philippine Peso Quote

Assume a couple from the U.S. is heading to the Philippines for a holiday. They need to buy some Philippine pesos (PHP) for their trip.

Since the exchange rate is free-floating, the rate will change by the day, and even by the minute.

Assume that the travelers check the current exchange rate and it is 52.27 USD/PHP. That means that the couple should expect to get somewhere close to 52.27 PHP for one USD.

Forex Rates vs. Real Exchange Rates

While this quoted rate on currency websites is the last trade value (or sometimes the current bid value), our couple will not be able to get that rate when exchanging physical currency. Currency exchanges and banks typically charge a 3% to 5% fee for exchanging cash, and factor that into the exchange rate. Therefore, for each USD the couple may only get ₱50.70 or ₱49.65.

If the couple wants ₱50,000 at a rate of 52.27, they would need $956.57. But if the currency exchange factors a 5% charge into their rate, they offer 49.65 and the travelers need $1,007.05 to get the same ₱50,000.

When our travelers return, they may have some Philippine pesos they want to convert back to U.S. dollars. Let's say they have ₱5,000. Assume the exchange rate is still the same at 52.27, but remember that banks and currency exchanges typically take 3% to 5% on both sides of the transaction.

Instead of only charging 52.27 for each USD, they are going to charge 53.84 to 54.88. That means that ₱5,000 won't buy as many USDs. At 52.27, ₱5,000 converts to $95.66. But at 54.88, it only converts to $91.11, which is about 5% less.

The Bottom Line

The value of the Philippine peso declined in 2021 and is projected to decline further in 2022. The aura of economic uncertainty surrounding the COVID-19 pandemic and the government's response to it has helped to depress its value against the U.S. dollar.

Its fluctuations are a problem for the millions of expatriates from the Philippines who work abroad and send money home to their families.

Those fluctuations are not, however, extreme enough to deter travelers intent on visiting the Philippines. They should do a bit of research in advance, however, to find the best exchange rate available for their U.S. dollars.