Messaging on Ja's exchange rate

Messaging on Ja's exchange rate

Wednesday, November 06, 2019

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Dear Editor,

Please allow me to comment on the Jamaica Observer article headlined 'High untimely FX demands by some banks fuelling exchange rate volatility', which appeared in the edition of November 3, 2019.

The governor of the Bank of Jamaica (BOJ) Richard Byles is quoted as saying that “it is the highly untimely portfolio foreign exchange demands which are causing the bumps being experienced in the market. If that is the case, the big question is: Should the BOJ have allowed these extraordinary withdrawals to have impacted the average daily rate so emphatically?

A more sophisticated system needs to be employed with the required buffer in place to absorb shocks of this nature, which is simply transferring the required funds from the net international reserves to cushion this storm. This application would be based on accepting the governor's statement that adequate funds are in the system at this time.

This move could surely have avoided the serious concern of the public and business sector which is taking place at the moment. They are all reacting to the new record low the Jamaican dollar has fallen to against its US counterpart. The Jamaican dollar closed last week trading at $140 to US$1.

Finance Minister Nigel Clarke, in a television interview while addressing the University of Technology, Jamaica strike, was asked by the presenter to comment on the record-low rate to which the Jamaican dollar had fallen. He stated, in no unqualified manner, that the foreign exchange rate will be left to the market forces, which of course is based on the demand and supply theory.

It is therefore highly contradictory that the BOJ governor is quoted in the Observer article referenced above as encouraging members of the business sector to conduct forward purchases of foreign currency at a guaranteed rate — what confusion!

Forward purchasing of foreign exchange has elements of the dreaded speculation, and the offering of a guaranteed rate also has traits of feared, fixed rate policy which runs contrary to the market force theory (demand and supply), which is the Government's policy.

Another major concern is the call by Governor Byles to the business sector to meet with him regarding demands for foreign exchange. The central bank governor must be made to be aware that efficiency and quality of management of companies in the private sector are measured by profit volume. They are not going to have any sympathy for the Government's inability to maintain a low, stable dollar. Loyalty is to shareholders and employees. They are in business to make profit on investments.

The Government, therefore, has to be strident, decisive, and firm on foreign exchange policies with their goal in sight. Their mandate is to adopt and execute monetary policies that will ensure smooth operation of financial institutions, with inflation at an acceptable level in order to foster growth and, by extension, improve the standard of living of the people.

Dalgalish Henry Sr

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