Import substitution, increase in exports, the solution to current FX decline – PSOJ

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Import substitution, increase in exports, the solution to current FX decline – PSOJ

Friday, November 08, 2019

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KINGSTON, Jamaica— The Private Sector Organisation of Jamaica (PSOJ) today said the solution to the volatility of the Jamaica dollar is to increase the country's earning capacity through exports of goods and services and reduce its import bill through import substitution.

In a statement released a short while ago, the PSOJ urged the FX Working Committee, established and led by the Bank of Jamaica (BoJ) comprising bankers, cambio dealers and members of the business community to continue its efforts to implement the Electronic Trading Platform and to further develop the Forward Currency market.

The organisation also called on the BoJ to continue to enhance its market intelligence gathering capabilities and proactive responsiveness to changing market conditions in order to reduce market imbalances which will undoubtedly occur in Jamaica's small open economy.

The PSOJ said it appreciates the anxiety that the Jamaican public has due to the volatility of the currency and the loss in value of the Jamaican dollar and its impact on business and individuals.

It noted that over the past month the Jamaican dollar has traded with increased volatility and has lost ground to its US$ counterpart trading with the weighted average selling rate closing at J$141.89 at the end of trading on Thursday November 7, 2019.

While inflows to the market are at the same level as in October 2018, there has been an increase in seasonal demand from end user segment including clients from the energy, distributive, manufacturing sectors along with portfolio demand from financial institutions, the PSOJ said.

According to the organisation, the recent Balance of Payments data for the June 2019 quarter reflected a current account deficit of US$51.9m, which was driven by a significant increase of US$179.5 million in imports. This deficit necessitated a drawdown on the Net International Reserves of $67.9 million.

The PSOJ said, under the Economic Reform Programme, Jamaica has adopted a flexible exchange rate regime which has seen the Jamaican currency moving in both directions.

It noted that, the BoJ has been moving to bring transparency and price discovery to the market through the following initiatives:

1. The introduction of the Bank of Jamaica Foreign Exchange Intervention Trading Tool (B-FXITT)

2. The implementation of the interim solution, the Bloomberg Trading Portal, pending the rollout of the Electronic FX Trading Platform. This interim solution gives visibility into the market.

3. The BoJ is advanced in the development of the Electronic Trading Platform which will lead to greater transparency to the Financial Institutions and end users.

4. Efforts are underway to facilitate the further development of the Forward market for foreign Currency transactions. This initiative needs to be accelerated.

The PSOJ argued that these initiatives should reduce volatility in the market over time through increased visibility of transactions in the market and with an efficient forward market to hedge positions and reduce the FX risks of the private sector entities and individuals.

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