Sun | Dec 8, 2019

BOJ begins buy auctions for forex under B-FXITT

Published:Friday | April 20, 2018 | 12:00 AM
Governor of the Bank of Jamaica, Brian Wynter.

The Bank of Jamaica, BOJ, introduced the buy side of its auction system B-FXITT, with an offer for US$5 million, but eligible bids fell short by US$1.05 million.

In an update during a briefing at the BOJ's downtown Kingston offices last Friday, Wynter said the offers were more than the US$3.95 million it ended up purchasing, but the bank could only accept offers that confirmed to the auction system rules.

" ... We only count the eligible offers. If your bid doesn't fit the rules then your bid will be disqualified," he said.

The weighted average price for total eligible and accepted offers was $125.42 to the USD. The lowest submitted offer price was $124.50, while the highest was $126.

Like its sell operation under B-FXITT, the BOJ announced the buy auction four weeks in advance. The schedule included plans to purchase US$12 million on April 18 and US$15 million on April 25.

Wednesday's auction resulted in US$18.35 million eligible bids, but BOJ only accepted the US$12 million of targeted purchases.

Market intelligence

Wynter explained that a few weeks ago, when the central bank was weighing what to do for the April 11 auction, "the signal gave us a buy.

"We use market intelligence," he added. "The information is provided by authorised dealers who, under this system, are required to tell us what they believe is going to happen in a quantitative way on the buy and sell side. And then we have our own information and then we apply our judgement to what the gap is showing."

Noting that the rules for B-FXITT are designed to encourage competition, the governor said, for example, that no one dealer is allowed to bid for more than 20 per cent of the amount being bought or sold. "So even if you have a bid demand or a big supply, you can't corner that particular auction," he said.

Wynter said that with the buy side of B-FXITT now functioning properly, the central bank will continue with the phased reduction of surrender requirements for foreign exchange traders in July.

The process began last October and continued in February. So far, the surrender requirements for authorised dealers has come down from 30 per cent of their daily purchases to 20 per cent, and for cambios from 25 per cent to 15 per cent.

Wynter said that "over time, the aim is to bring that down ultimately probably to zero - but certainly way, way lower than it is now."

Prior to B-FXITT, which was first implemented in July 2017, BOJ would intervene in the market as a buyer and seller, but usually at stipulated rates. Its interventions were mostly on the sell side.

As to why the central bank buys foreign currency, the governor explained that the BOJ is the source of foreign exchange for the Government, which needs to pay interest and principal on its debt, or for Petrojam to pay for shipments of oil, or other public entities that may need to pay on an invoice or contract.