In its assessment of the decisions by global banks to scale back operations in Jamaica, the International Monetary Fund (IMF) says that the wider financial system has emerged largely unscathed.

However, it says there are consequences for financial inclusion with the withdrawal of services for the cambio sector, which is labelled as ‘high risk’.

In the 13th review of the extended fund facility agreement between the IMF, released last week, the Fund expressed concern that disruption in cambio services could potentially drive FX transactions underground and increase dollarisation in Jamaica.

In the last four years, multiple overseas correspondent banks instructed Jamaican domestic banks to cease processing transactions on behalf of cambios through their accounts, “given the difficulty of undertaking due diligence on such transactions”.

As a result, domestic banks have stopped cash transactions with cambios altogether. Cash transactions comprise about 20 per cent of total cambio transactions, the IMF notes.

In the wider system, the Fund noted that since 2012, five domestic banks have had some of their CBRs (correspondent banking relationships) terminated.

However, the foreign exchange transactions of these banks have not been impacted, as they were able to maintain their existing relationships with other overseas banks or find replacements for their lost CBRs.

The IMF said in its analysis, “The shifting pattern of global banking has not significantly impacted financial flows into Jamaica, but its implication on financial inclusion could be relevant. Cambio transactions are typically small exchanges with individuals, and provide convenience for workers in the tourism industry.”

The Fund notes that actions are currently being discussed in the Caribbean Community (Caricom) to mitigate the impact on the loss of CBRs for the region which include: collective action and bundling of services to increase the business volume brought to a smaller number of correspondent banks; introduction of a scheme to purchase CBR insurance policies; the possible creation of a US-licensed special purpose vehicle (SPV) to process international transactions, and payment of CBR service fees.

If the correspondent banking problem should progress further, the Fund said, loss of banking services could significantly curtail cross-border payments, trade finance and remittances, and encourage the development of an underground economy.