Co-Chair of the Economic Programme Oversight Committee (EPOC) Keith Duncan has expressed confidence that the Bank of Jamaica’s planned multiple-priced foreign exchange (FX) auction will create more efficiency in forex market transactions.

The Government of Jamaica, with a view to creating exchange rate flexibility, has signed off on the International Monetary Fund (IMF) recommendation to introduce a forex auction to smooth excessive currency market volatility.The move, the IMF says, is an important component to successfully move to inflation targeting, which is aimed at sustaining Jamaica’s monetary and financial resilience. To further strengthen FX markets through greater price discovery and transparency, the Bank of Jamaica will gradually phase out the use of surrender requirements and instead establish multiple-price FX auctions, this month, as a market-based exchange rate pricing mechanism for BOJ buying and selling.The central bank says it is working to further improve high-frequency forecasting of FX flows from corporates, banks, exchange houses, and securities dealers, as well as improved monitoring of the banks’ net open FX positions.“Right now with the BOJ there is what you call the 25 per cent surrender requirements of what you trade on the market to the BOJ. Now they want to move away from that and have the BOJ buying and selling in the market to build their reserves to supply the market when there is a short in foreign exchange. So they are moving away from reserved requirement into a more efficient market mechanism,” Duncan told media representation during the second quarterly review of the 3-year IMF Precautionary Stand-by Arrangement.He anticipates that the FX auction will resemble a treasury bill auction, but noted that the term ‘auction’ is not resonating well with the people of Jamaica.“In the same way we have a treasury bill auction, you have auctions for a GOJ debt. It’s the same kind of mechanism that is going to take place. I believe that it will and it can work; it will be more efficient, it’s how it’s introduced,” he said.“I think there is a lot of baggage coming from the 1980s in relation to auction but we do have treasury bill auctions which are quite efficient, so there is no reason why we shouldn’t be able to do so with the FX,” he reasoned.But CEO of the Private Sector Organisation of Jamaica (PSOJ) Dennis Chung raised concerns about the reintroduction of an auction system in Jamaica.The background noise was that the country might revert to the 1980s when the Seaga administration settled on an auction arrangement, which was intended to ensure stability and the facilitation of economic growth — but instead enabled a forex black market and was used against large foreign-exchange users to keep them out of the market.Duncan has, however, assured that private sector bodies are in consultation with the working committee from the industry on how to move forward.He added that since the implementation date is June, the public should soon be informed of how the system will operate.“I know there are consultations, there was a meeting and I think people are warming up to it, it’s a change in how the BOJ will interact with the market but I believe its somewhere that we need to go for a more efficient market,” he said.