The dollar must not be allowed to sufferFriday, February 26, 2021
The Jamaican dollar at the time of composing this article now stands at $150.01 to US$1. Urgent attention ought to be directed to the increasing exchange rate.
It has been purported by many that the jitters in the foreign exchange market is due to external impulses.While there is validity in the argument presented, we cannot continue to sit by and observe the Jamaican currency being depreciated at such an increasing rate.
Yes, the novel coronavirus pandemic, to an extent, has played a part in the dwindling value of the Jamaican currency, but frankly, there have been immense struggles with equilibrating this issue for many decades.
The issue of high inflation rates in Jamaica is a long-standing one that must be addressed if we are to witness a notable appreciation of the Jamaican currency. I believe it is a significant contributor to the crisis we currently endure in our exchange market, as these high rates continue to nullify the economic progress being made. Frequent and uncontrolled devaluation significantly erodes the purchasing power of consumers. For instance, effective May 2020, the Bank of Jamaica reduced the cash reserve requirements of deposit-taking institutions (DTIs) by two percentage points to five per cent. The reduction of the domestic currency cash reserves returned approximately $14 billion to DTIs .This measure, inevitably, increased liquidity within the financial system, which raises the demand for US dollars, resulting in yet again another devaluation of the Jamaican currency. Unequivocally, Jamaica will continue to experience a revolving cycle of extreme difficulties in stabilising the currency if this practice continues.
Admittedly, this situation is not easily counteracted by implementing one or a few short-term solutions/initiatives to myopically numb this highly precarious position. Aggressive consistency and monitoring on the part of the central bank, in tandem with the Government, is critical to stabilising the dollar. Focus must be directed more on sustainable measures that will, at best, provide solutions aimed at addressing the core issue(s) surrounding this debilitating national issue.
Additionally, the development of digital currencies backed by central banks across the region is gaining much momentum. The Bahamas launched the world's first central bank-backed cryptocurrency, the Sand Dollar, last year, and has recently collaborated with MasterCard and Island Pay to create a unique prepaid card which allows for its citizens to convert the digital currency to traditional Bahamian dollars so it can facilitate the exchange of good and services, accelerate developmental efforts, and significantly reduce the operational costs associated with cash distribution.
While these central bank-backed digital currencies (CBDC) have significant advantages for the economy, even moreso during a pandemic, there are still critical concerning issues as it pertains to data privacy, cybersecurity risks, regulatory processes associated with new forms of transaction mediums, as well as excessive withdrawal at once from banks to purchase CBDCs could trigger a run on these institutions.
As Jamaica moves forward in its bid to facilitate the development of a central bank digital currency, thorough and in-depth research and analysis, along with a pilot programme, should be executed to determine the feasibility, operative protocols, and the varied impact on our financial system, particularly the banking sector.
We must deal with the sliding dollar and inflation. We must adjust to innovation and changes in the new existence. But we must do all this responsibly.
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