Saving the dollar

Saving the dollar

Thursday, November 14, 2019

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Dear Editor,

In the normal sense of a market, demand and supply of US dollars should eventually force the Jamaican dollar to find its true economic value. Our economy is not that simple, however. In Jamaica, our demand for US dollars supersedes the supply. It is a vicious cycle. We have an insatiable appetite for foreign goods; we import far more than what we export and can afford, which explains why our national debt is staggering.

There was an article a few years ago about the large amounts of fake hair Jamaicans import. Add to this a wide range of brand-name cosmetics, luxury items, cars, clothes, and even basic food items, some of which we are able to produce locally. We have a cultural preference for foreign brands. It is for this reason I took issue with Kevin O'Brien Chang's column in the Jamaica Observer on Tuesday, November 12, 2019, 'Stop the currency crises talk', in which he expressed the view that the local currency movement is normal and we should just sit by and watch and wait until our purchasing power is on par with that of the USA and other countries.

Fact is, most Jamaicans do not earn US dollars or earn income relative to the USA. It is unlikely our purchasing power will ever be on par, which suggests that our devaluation problem is indefinite.

It is very easy for Chang to say, “stop wasting time and energy on the imaginary issue of exchange rate volatility”. He is not among the over one million Jamaicans living in extreme poverty, and the countless others who struggle daily to make ends meet. Textbook economic theories alone cannot solve Jamaica's complex economic problems, especially when culture is a big part of it.

The Government can do a lot more to shape culture, influence markets, and drive the economy to record growth levels. We also have a foreign currency leakage problem, and Government can also help to curb this. It is irresponsible to suggest that the Jamaican dollar is currently stable, and that the market is normal and concerns and speculation are unwarranted. We cannot advance economically, when many of our activities are used to drive the US economy which helps to maintain much lower inflation rates in USA, at the expense of ours.

The Jamaican currency market is not normal when the Jamaican dollar moves in one direction only — downwards. Constant devaluation also affects our investment climate, and economic prospects. You cannot compare currency movements over a few years and say it is normal, because its movement is less significant compared to a longer period of time. If we import less, export more, if more profits from tourism were retained in Jamaica, if there was less leakage of foreign currency leaving Jamaica, our dollar would be valued at a much better rate and the market movements would be more normal and prices and inflation rates would be lower.

The Bank of Jamaica recently intervened in the market, selling US$30 million to authorised dealers and large cambios to improve foreign currency supply and reduce speculation. This was in addition to another US$40 million which was sold on the market days before. Commercial banks have also expressed concern about the slide of the Jamaican dollar. If there wasn't a crisis would they have intervened?

P Chin

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