Postcard from the Philippines—Domestic Currency Crisis

BBC, East Asia Today, [27 January 1998]

Our postcard this week has arrived from the Philippines which has been experiencing a currency crisis. But it's not that currency crisis. It's a different crisis altogether—and one that was entirely of the Philippines' own making.

John Mclean tells us all about it:

A picture in a Manila newspaper the other day showed a woman outside a closed-up bank, desperately but vainly knocking on the door. Beside her, on the pavement, were two large bags, full of money. She was there to dump her Philippine pesos - not because the international value of the pesos in her bags was declining (although it was): but because their domestic value was declining—in fact they were to become utterly worthless, because her money was all in coins. The woman was a victim of the Philippine's other currency crisis—the attempt to reform the coinage.

Until the beginning of this year, there were no fewer than four different sets of coins in circulation, all in various denominations, and all different in shape, size, weight or colour. I counted at least twenty-one different coins in use—none of them worth more than twenty US cents. This meant that giving change in the Philippines used to require an extraordinary feat of concentration. It was hard, for example, to distinguish the two-peso piece belonging to one set of coins from the one-peso piece in another set, or from the fifty-centavo piece (worth half a peso) in a third set.

Reform was what was needed. So, the Central Bank declared that at the beginning of 1997 all but the most modern set of coins would cease to be legal tender. Fine, but the Central Bank also declared that for another twelve months the older coins could still be exchanged for new ones at any bank. Now this approach failed to take into account the Filipino propensity to procrastinate. So the older coins remained in circulation, although they were no longer legal tender people continued to accept them, because they knew that they could still be exchanged for new coins. Until that is about three weeks before the deadline on the 2nd of January this year, when banks were due to stop exchanging the old coins for new. Then the silly games began.

Filipinos too lazy to take their old coins to a bank began spending them as fast as possible to get rid of them. At the same time they began to refuse to accept them. Toll booths on the expressways for example suddenly began refusing to take old coins from drivers, but happily gave old coins in change. This state of affairs led to plenty of ugly arguments.

What about people such as the woman in the newspaper picture who dutifully collected bags full of old coins expecting to exchange them at a bank? Well, this particular woman was too late, because whoever set the 2nd of January deadline forgot about the Filipino devotion to public holidays—which meant that the last day before the deadline that the banks were actually open was December the 29th.

So, are the woman's coins now actually worthless? Not exactly. Possibly because people were so slow in handing in their old coins there's now a shortage of the new ones. As a consequence, in the provinces people have no choice but to continue using the old coins. And here in Manila where there's a shortage of all but the practically useless new twenty five centavo coins, people have been using adhesive tape to stick them together in bundles of four or eight, in effect creating their own new one peso or two peso pieces. The upshot is that the confusing array of coins in circulation is actually growing. So much for the reform of the coinage.