Can I Change Guyana Money In Jamaica West Indies

All the same Jamaica'due south economical linkages to the US, the "post-traumatic stress" of years of asliding dollar makes it incredibly difficult to wean Jamaicans off the greenback.

At its first monetary policy meeting for 2022 the Bank of Jamaica (BOJ) increased its policy interest rate by 150 basis points, taking it to 4 per cent. With an aggrandizement rate of approximately x per cent for the menstruation January 2021 to January 2022 and, given the recent deportment and utterances of the BOJ, an increase was expected. A low, stable, and predictable level of inflation is certainly desirable; however, information technology is evident that greater efforts must be fabricated to stabilise the value of the Jamaican dollar.

The BOJ'south budgetary policy agenda is premised on the view that since money flows relatively freely into and out of the state, then it would be incommunicable for the BOJ to exercise contained monetary policy while maintaining a fixed exchange rate. Economists telephone call this the impossibility trinity. Contained monetary policy, equally is used here, means that a central banking company can set interest rates independent of movements in foreign interest rates. Independent budgetary policy should non exist confused with the fact that the BOJ is able to brand budgetary policy decisions "contained" of pressures from the Ministry of Finance or the prime minister. Alternatively, if the BOJ decides to have a fixed substitution rate, then its monetary policy will exist dictated by the need to maintain the value of the dollar.

Given the strong links to the US and the increased interconnectedness of the earth brought on by decades of globalisation and the growth of information and communications technologies, can nosotros really say that Jamaica'south budgetary policy regime is contained?

The BOJ is certainly concerned nearly capital flight as the U.s. is preparing to raise its policy rate. If there is none or lilliputian de facto budgetary policy independence, and so perhaps it is time for greater focus on stabilising the exchange charge per unit.

In Caribbean jurisdictions such as St Lucia, Grenada, and Barbados, currencies are fixed. These countries have not been plagued by periods of extremely high inflation, including hyperinflation, which accept affected Guyana, Jamaica, and Suriname; countries with flexible exchange rates. Fixed exchange rates can and have promoted fiscal and budgetary subject in minor open economies. Of form, there are costs to having a fixed exchange charge per unit. For instance, a land'due south reserves of strange exchange will have to be carefully managed, thereby limiting admission to scarce strange currency. This constrains the ability of consumers and firms to exercise business. In Jamaica, policymakers also piece of work towards limiting the use of United states dollars, calling for reductions in the holdings of Usa dollar assets in Jamaica, and creating disincentives for holding said assets. All the same, the love for the United states dollar remains strong. Yet Jamaica'south economic linkages to the The states, the "post-traumatic stress" of years of a sliding dollar makes it incredibly difficult to wean Jamaicans off the greenback.

We must admit that Jamaica is not the United States of America. Jamaica is not England. Jamaica is a pocket-size, open economic system. Pocket-size is not used here simply as a reference to population or geographical size; rather, it speaks to the fact that Jamaica has no influence on global prices, including interest rates. When Jamaican policymakers raise interest rates we don't look a corresponding appreciation in the value of the Jamaican dollar, or vice versa. In the U.s.a. and England, an increase in the policy charge per unit to fight aggrandizement can and does cause currency appreciation. This helps to reduce inflationary pressures as imports become cheaper and exports volition be dearer, leading to a reduction in the quantity demanded by foreigners, increasing domestic supply, and further dampening inflationary pressures.

In keeping with the BOJ Act 2020 (section 34FF, subsection 4), the BOJ, for policy decisions, is required to apply the inflation rates as reported by Statistical Institute of Jamaica (STATIN). However, the BOJ does its own forecasting and therefore has a very good thought about where the inflation rate is likely to be. One wonders then whether there is a demand for the current fine-tuning (incremental interest rate increases). Is this the most efficient arroyo given the time it takes for policy changes to work through the organization? Wouldn't it have been more efficient to have ii rate increases: September 2021 and Feb 2022? Perchance the fine-tuning is a gradual nudge to commercial banks which have thus far shown restraint as regards increasing interest rates.

The BOJ'due south forecasting shows that inflation volition remain above its 6 per cent target until August 2022. Bold this forecast holds true, are we to expect increases in each of the next four meetings up to Baronial 2022? How high will the BOJ policy rate go? Will the BOJ rely more on its other tools to curtail Jamaican dollar liquidity?

The BOJ must exist given credit for its contempo aggressive actions in the substitution rate. For example, during the period February xiv-18, the BOJ intervened four times using its "flash intervention" tool. These interventions are exterior the norm, but were necessary. There are restrictions on the range of the resale price and the types of firms commercial banks and other currency dealers are allowed to resell the currency they bought through the BOJ's intervention sale. Indeed, the BOJ would prefer that the strange currency it releases is used to buy necessary imports, such equally energy resource and food. This is all well and good, just more than market-driven initiatives should be used alongside these interventions. I repeat the telephone call for the BOJ to promote and help to build the fledgling market for derivatives such as not-deliverable forward contracts. Such a movement promotes the widening of options in the foreign exchange market and aligns with the BOJ's aim to steadily reduce its footprint in the foreign commutation market.

Notwithstanding the BOJ'southward efforts to stabilise the dollar, I fearfulness that its credibility volition non better any time shortly every bit consumers and firms question its ability to deliver a relatively stable dollar. The BOJ has significant reserves of foreign currency. This "war chest" of foreign currency reserves reduces the need for Jamaica to seek rest of payments support from the Imf (International monetary fund) in the time to come. This is sound policy, but failure to enhance exchange rate credibility today could adversely impact the size of the reserves tomorrow.

Working to stabilise the dollar can complement inflation targeting. Johnathon Ostry, a senior Imf economist, notes in a 2015 newspaper, "[I]f two policy instruments are available (the policy interest rate and foreign exchange market intervention), then they should be used in tandem to achieve both toll-stability and exchange-charge per unit objectives… When the central bank is seeking to entrench its commitment to low inflation in the eyes of the public, a ii-musical instrument IT framework may yield significant benefits."

Given the policy comments of the BOJ, and its contempo aggressive actions in the foreign exchange market, can nosotros look greater focus on the foreign exchange market? Are the days of pending the nod of approval from Foggy Bottom (the International monetary fund) behind us?

Dr Samuel Braithwaite is a lecturer in Section of Economic science at The University of the Due west Indies, Mona. Send comments to the Jamaica Observer or braithwaitesamuel@gmail.com.

Samuel Braithwaite

Source: https://www.jamaicaobserver.com/columns/how-about-a-stable-predictable-exchange-rate/

Posted by: glassponot1968.blogspot.com

Share this post