Floating exchange rate not good for business

Monday, November 05, 2018

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Dear Editor,

I recently read in the newspaper that Jamaicans need to get used to a floating dollar. Are we really serious?

The floating exchange rate is creating havoc in the trade, especially with the wide swings. There is too much unpredictability.

I speak specifically for the manufacturing sector. Raw material imports are brought in on credit with terms that extend up to 60 days. As a result, imports brought in today may not be paid for until two months down the road. This current situation is analogous to someone gambling as if you import when the rate is low and have to pay for the goods when high you will suffer a loss. Likewise you will gain if the situation is reversed. An unreasonable low rate will also have an adverse effect on our exporters.

Based on my layman calculations, the dollar has devalued by some seven per cent over the past couple of weeks. Changing US$1,000 a couple of weeks ago would have given you $132,000.00. Today with that same amount you would only get $122,000.00; that's 10,000.00 less.

The floating dollar will undoubtable soon have an inflationary effect as importers will have to start adding an extra percentage on their invoices to mitigate potential losses.

In the past we were told that the dollar would devalue whenever our inflation rate exceeded that of the USA. That explanation seems to have gone through the window as recently our inflation rate was on par or below that of the USA.

My view is that the Government should set a band for the rate and defend it with the net international reserves. My wish is that the floating dollar will not be the new normal going forward. Business people do not like a climate of unpredictability.

Andrew Gray

grays.pepper@cwjamaica.com

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