Dh1 is now Php16: UAE's Filipino expats send 'higher' remittances but don't feel richer; here's why

The UAE dirham–Philippine peso exchange rate has nearly breached the P16 mark. This means, a Filipino expat who sends about Dh4,000 (Php64,000) monthly to their family back home, easily gets Php8,000 extra remittance as compared to what they used to send three years ago, when the exchange rate was hovering about Php14 against the dirham.

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For Filipino chef Rudy Gamit Galorport, 47, however, the seemingly positive news of high exchange rate for dirhams “is nothing but an illusion because it is not felt in terms of real value as prices of goods and services back home have increased rapidly”, eating up whatever growth in remittance his family is now receiving.

Galorport told Khaleej Times he is actually sending more dirhams now to cover grocery and utility bills. “Earlier, I used to send about Php30,000 or Dh2,150 (when the dirham-peso exchange rate was Dh1=P14). But now, since prices of food, electricity, water and transportation all went up, I need to send at least Php40,000 or roughly about Dh2,500 monthly.”

The same is true for Dayrene Capistrano Nollas, 36, a single mother with two children, who now finds herself looking for a higher-paying job to meet the growing expenses of her family in the Philippines.

The ‘money illusion’ concept

The phenomenon of getting an extra bang for the buck due to higher exchange rate is commonly referred to in behavioural economics as the ‘money illusion’, Dr Rommel Sergio, book author and Graduate Studies associate dean at Canadian University Dubai (CUD), told Khaleej Times.

“The phenomenon where the increase in salary or remittance is offset by rising costs of living is not unique to Filipino expatriates but is a global occurrence affecting workers worldwide. The Indian and Pakistani rupees have also gone down against the UAE dirham, and South Asian expats are getting more money when they remit their salary back home. But that does not mean their purchasing power has increased,” said Dr Sergio.

“The concept of ‘money illusion’ highlights the disparity between nominal wage increase and actual purchasing power, and it plays a significant role in how people perceive their economic well-being,” added the management professor, who recently released his third book titled, ‘Emerging Innovation: Business Transformation in the New Normal’.

Sergio said: “Money illusion is a concept in behavioural economics where individuals tend to think of currency in nominal rather than real terms. They focus on the face value of money rather than its purchasing power. Individuals might see an increase in their salary and feel wealthier, but this perceived increase does not necessarily translate into greater purchasing power if the cost of living also rises disproportionately or even more.

“This illusion can lead to a false sense of financial security, as the real value of their income remains unchanged or even decreases,” he said.

Focus on inflation control

Sergio said having a high exchange rate is not the answer to improving the lot of expat workers.

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