Can something be done about the fluctuations?

Tuesday, November 19, 2019

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Dear Editor,

Reference is made to a column in the Jamaica Observer by Kevin O'Brien Chang, entitled 'Stop currency crisis talk', and published on Tuesday, November 12, 2019. I must first declare that I am not an economist. My view is that of a layman doing business in Jamaica for over 35 years.

The reason for the devaluation of the currency is well understood. However, I must add that other external factors apart from the purchasing power parity (PPP) may affect the value of the currency, namely supply and demand, as well as speculation.

Nothing works in isolation. My background is in science. Identical twins will have the same genes, but they will be manifested differently in different environments. I say this to say that theory does not always dictate the end result.

Chang's main focus was the devaluation of the Jamaican dollar. I think everyone in Jamaica already accepts the fact that the dollar will devalue. That is a given. The problem that most of us are having is the wide fluctuations of the currency. This is causing havoc, especially in the productive sector, as the cost of goods changes almost monthly. Merchants who import adjust their prices accordingly. One just has to visit a store over a period of time and notice the numerous changes in prices.

Manufacturers cannot operate in this manner as their route to market is much different. Most supply a distributor who, in turn, supplies the wholesale or retail market. Any increase from a manufacturer is multiplied many times before it reaches the end of the chain. As a result, most of the increases are absorbed, resulting in lower margins.

The instability also affects the exporter, as the difference in exchange rate at the time of cashing their US-dollar payment will determine whether they make a profit or loss. I know as a fact that this is happening in the trade. This is synonymous to gambling.

We accept that the dollar will devalue, but can something be done about the wide fluctuations? The relatively short-term fluctuations cannot be explained by the PPP theory. The see-saw movement just serves to encourage more speculation in the market, which puts more pressure on the dollar. This matter needs to be addressed so all sectors can move forward with more confidence.

Andrew Gray

Gray's Pepper

grays.pepper@cwjamaica.com


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