Forex market dominated by non-cash transactions
The majority of foreign exchange transactions done on a daily does not include cash and the Bank of Jamaica, BOJ, has been making a point of informing the public about it.
Senior Deputy Governor John Robinson said the central bank began disaggregating its trading information since last September for persons to better understand the components of the overall weighted average exchange rate that the BOJ publishes daily.
Before then, the BOJ had been reporting on the overall average buying and selling rates for the US dollar based on counter rates, which as at Tuesday was at $136.85 on the sell side.
On that day, the market sold US$42.58 million, of which $40.83 million or about 96 per cent were non-cash transactions, with an average selling rate of $137.01. The proportion of cash to non-cash transactions on Tuesday was fairly typical of the daily activity in the market, based on previous transaction reports reviewed for this story.
Meanwhile, the foreign exchange rate hit a new high this week - which means the value of the Jamaican dollar reached a new low against the US dollar - at $137.20 on Wednesday.
Non-cash items comprise wire transfers and cheques, which the central banker said are the main means of conducting payments by both businesses and individuals.
Rates offered by dealers and cambios for both buying and selling cash "are typically lower and so users of the information will be able to discern the influence of a change in the volume of cash transactions on the overall rate," Robinson said.
"If you go to the bank to sell them US$100,000, the rate is usually negotiable and tends to be higher than the counter rate, which is what retail customers get," said the central banker.
Non-cash transactions attract the best rates, he added.
On Wednesday, for example, non-cash transactions accounted for 97 per cent of USD sales, at a rate of $137.31 - which was higher than the overall average rate of $137.20.
"Cash is very expensive to handle so banks typically offer a lower rate if you try to sell them cash, because once they get it then they have to insure it, they have to repatriate it and the cost of handling cash, especially where there are limits to the amount you can actually transact, is quite high," Robinson said.
"So, for example, if you go into a bank with a US$10 note you might get J$120 for it, but if you go in there with a cheque for US$10 you might get J$125 because the bank has to take that note and send it back to the US."
Non-cash transactions are typically used for payments to foreign entities, but Robinson said this was not analogous to capital flight. Flight of capital occurs, he noted, where Jamaican dollar holdings are converted to foreign exchange and held elsewhere.
"There is no evidence of that. Money flows in and money flows out and more money comes in than goes out," said Robinson. "In so far as transactions for regular payments are concerned you'll notice that the current account deficit" - where the value of the goods and services imported exceeds the value of the goods and services exported - "is relatively small compared to previous years, although a lot of that is made up of receipts from remittances and tourism, which doesn't always flow to the foreign exchange market," he said.