The peso and Philippine economic history

The recent Agustín Carstens, (General Manager of the BIS) speech discusses the discovery of trade route between Philippines and Mexico:

In 1565, an Augustinian friar, Andrés de Urdaneta, discovered the return route from the Philippines to Mexico – then New Spain. This discovery meant that galleons could do round trips between America and Asia in an efficient way. Chinese silk, porcelain, spices and other goods travelled from Manila to Acapulco. The merchandise was then transported to Veracruz on Mexico’s east coast, from where it was on-shipped to Europe. From Mexico to the Philippines, the galleons would carry mostly Mexican silver, a widely accepted means of payment at the time. This trade route lasted for approximately 250 years, up to 1810-15 when Mexico fought for its independence from Spain. I bring this up because that trade route could be considered an early manifestation of globalisation.

The speech was given at the 20th anniversary of BIS’s Asia office in Hong Kong.

Notice that he mentions how the trade led to Solver coming to Philippines which becomes its main form payment.

Gerardo Secat in a series of posts (one, two)is looking at history of Philippine Peso and Philippines economic history. In these he points how the Peso got its value from this Spanish silver. He also discusses the later linkages between US dollar and the Philippine Peso:

The story of the peso is inextricably linked with our economic history as a nation. It is also part of Philippine political history. A monetary currency is adopted by the government to set up a means (and guarantee) of payment to enable normal commerce to proceed.

Spanish colonial times. During the 16th century (the age of explorations and European colonization of the world), the peso was a royal silver coin minted by the Spanish royal crown, much like the thaler (or “dollar”) within Europe.

Also known as real de a ocho (or “piece of eight”), the peso was also minted in larger quantities in colonial mints of the crown in Mexico and Peru, where bountiful mines were located that produced great wealth and power for the Spanish empire.

The peso would find great currency in the Spanish colonies (including the Philippines). Spanish colonial administration would adopt the peso as the means of payments in trade and financing of the government.

Throughout Spanish colonial period, the peso would delineate the story of Philippine trade and domestic prices. It was the currency that financed the Galleon Trade with Mexico and life within the colony up until the contemporaneous life of Jose Rizal  who was executed by the Spanish authorities shortly before the Spanish-US War of 1898.

The peso in American colonial times. One of the first decisions of the American military government when it took control of Las Islas Filipinas (the Philippine Islands) from Spain was to continue to use the peso as the local currency for transactions in the new colony unit.

The islands were a booty won from war in 1898. The US destroyed Spanish colonial rule over the islands, overcame also militarily the local struggle for independence, and took political possession. The transfer of political control through a treaty of peace and the payment of $20 million equivalent for “improvements” that Spain made as the former colonial master saved face as the loser.

In adopting the peso as the unit of currency, the US colonial government fixed its value at one-half the US dollar. Thus, one US dollar became equivalent to two Philippine pesos.

That made the Philippine peso become a currency based on fixed exchange rate with the US dollar. Hence, it was a currency operating under a “dollar exchange” standard. It was common practice among colonial powers to base local currencies after a fixed exchange with their own stronger currency.

Throughout the almost five-decades of strictly being under American colonial administration, the Philippine peso had a fixed value of two pesos per US dollar.

Superb bit of history and know how….


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