Structure of BOJ forex auction still to be determined
The mechanism for the foreign exchange auctions proposed by the central bank will be determined through consultations with market players, supported by technical assistance from the International Monetary Fund (IMF).
John Robinson, senior deputy governor at the Bank of Jamaica, said the information about the auction in IMF documents amounted to a declaration of a policy direction.
The central bank now has to design the auction system, which is expected to go live by July 2017.
The IMF's November 2016 country report on Jamaica said the BOJ will institute a multiple-price foreign exchange auction - where successful bidders are allocated currency at the price they bid in the market.
He noted that the word 'auction' has "ruffled a few feathers" and that BOJ has been attempting to deal with the concerns. Jamaica previously operated a foreign exchange auction system, but that was in the pre-liberalisation era.
"What we propose to do, working from a kind of generic model of an auction, is to hold a series of consultations with the market and supported by technical assistance from the IMF so that by March, we will have a fairly good handle of how we are going to proceed when we do implement it," said Robinson.
"But as for the details of the bidding process, the frequency, the size all of that has not yet been worked out. That will be done through a process of consultation, both with technical experts from the Fund and with our local operators, so that everybody becomes quite comfortable long before it actually starts," he told the Financial Gleaner on Wednesday.
Applies to BOJ only
Robinson said the auction will apply only to the BOJ. "It's a method of us buying from the market and selling to the market," he said, "so we are not going out there to bid on some earnings by some hotel group or sell directly to some importers. We will continue to operate through the established intermediaries, who are the authorised dealers and cambios."
Robinson said the foreign exchange market will continue to operate largely as it is now, from a public point of view, and that the change will manifest in the BOJ's interaction with its authorised dealers, saying "there will be some modification to how we buy and sell".
Others in the market will continue to do business with their banks, authorised dealers or cambios, he said, adding that none of the interface between the public and the dealers will change, whether they are buying or selling currency.
Under the current system, commercial banks get foreign exchange from the central bank on occasions when there is a general shortage and it intervenes to meet market demand.
"That will continue until the auction takes over. So if tomorrow it is announced that a market shortage is developing, we will put out a notice to the market" and offer to sell foreign exchange, said Robinson. "That has been happening for years and that won't change until a new system of intervention is agreed and announced."
Once the auction is implemented, if commercial banks, for example, face a shortage of foreign currency, "we'll sell to them by auction. In the same way that they would sell to us by auction, we sell to them by auction," he said.
According to the IMF report, once the auctions are implemented, the BOJ will gradually phase out foreign cash surrender requirements.