BOJ downplays forex split
The Bank of Jamaica (BOJ) is again pointing to plans to introduce a trading platform that is meant to ensure that Jamaica has a liquid foreign exchange market by facilitating transactions among authorised dealers and large cambios.
It reaffirmed those plans last week as a split in views emerged in public view in a sign that exchange-rate volatility was still a rising sore point in the business community.
But most unusual is that differences at the central bank, whether at the level of its committees, board, or executive management, are not usually aired in public.
The trading platform is in the process of development.
“The main project, in order to integrate that platform with our existing system, will take a little bit. We hope to have it in place by the end of this year so that it can be tested,” said BOJ Senior Deputy Governor John Robinson.
He was responding to Financial Gleaner queries regarding criticisms by businessman Omar Azan, a member of the central bank’s Foreign Exchange Market Development Committee
As the Jamaican dollar edged towards $135 against the US dollar, its main trading counterpart, Azan said on RJR’s radio programme Hotline that the BOJ was not being proactive in managing the impact of extraordinary transactions such as repatriation of profits overseas or a huge bill that entities like state oil refinery Petrojam has to pay.
“They know when it’s coming. They are aware of it and rather than waiting until after to intervene, why not be proactive, knowing the particular transactions?” he asked.
Robinson said Azan’s view was not indicative of the feeling of other members of the foreign exchange committee.
“He may represent views which are those of his associates, not any other member of the committee, I think. It doesn’t make it invalid, but it’s not a common view,” the central banker said.
Asked whether others on the committee shared his view or have expressed similar sentiments, Azan said probably not in the very open way that he has.
“I am very open,” said the businessman, who owns and manages Boss Furniture, on Friday.
BOJ trading data indicate that the currency has depreciated by close to nine per cent since mid-March.
The JMD traded at its highest point of $124.79 on March 18 but has since depreciated to $135.86 as at Thursday. Its worst showing, however, was in February when the currency plunged to $137.21 against the USD.
Regarding Azan’s criticism that the BOJ was not proactive enough in its market interventions, Robinson pushed back, saying that the central bank does not act on the objective of maintaining a stable rate.
“Our approach is not to smooth out every instance of additional demand,” he said. Instead, the BOJ intervenes “when there is a threat that disorderly conditions might develop.”
“We are allowing the market to grow, for people to observe patterns, for people to take advantage of hedging instruments and not to protect everybody from every rate movement,” said the deputy governor.
BOJ believes that “liquidity in the market is important so that whenever we see signs that liquidity is drying up, we add [sell to the market], and when we see signs of too much liquidity, we buy. We haven’t done that recently, but that’s our stance.”
Prior to mid-2017, the central bank was an active player in the foreign exchange market and would often intervene to stabilise the local currency. The central bank would buy and sell at stipulated rates as tools to control the movement in the value of the JMD.
That system gave way to a more market-driven arrangement under which the central bank uses an auction system – known as B-FXITT – that allows traders to bid for foreign exchange.
Since the advent of B-FXITT, the exchange rate has experienced volatile swings in both directions. Businesses argue that the volatility has led to uncertainty around pricing.
“Some people are of the view that the old days – when BOJ would intervene after a small movement in the exchange rate – that those days should return,” said Robinson. “No,” he added, “those days are behind us.”
Azan says the BOJ is trying to get it right in its management of the forex market but still maintains that the BOJ is more reactive than proactive in its approach.
“It’s a learning curve for everybody, but I’m a little more bullish when it comes to things like this,” he said. “I think we need to be a little more aggressive. I’ve always said it in the committee meetings,” he told the Financial Gleaner.
The names of the current members of the BOJ foreign exchange market committee are not available through the central bank’s website. BOJ said it seeks broad-based representation but only provided the names of 15 organisations that are represented.
They span the:
- Jamaica Bankers Association
- Private Sector Organisation of Jamaica
- Building Societies of Jamaica
- Jamaica Securities Dealers Association
- Cambio Association
- Insurance Association of Jamaica
- MSME Alliance
- Ministry of Finance and the Public Service
- Jamaica Chamber of Commerce
- Jamaica Hotel and Tourism Association
- Pensions Association of Jamaica
- Jamaica Manufacturers
- Jamaica Remitters Association
- Jamaica Public Service Company
- Small Business Association of Jamaica.
Azan represents the Jamaica Manufacturers and Exporters Association on the committee.
Robinson said the platform under development is meant to engineer wide market access and would “allow all authorised dealers and large cambios to be able to see what are the prices in the market at any point and to facilitate trading among the dealers.”
The dealers currently trade with the central bank.
The central banker also noted that there are ways for businesses to manage their foreign exchange exposure, saying that they should seek to lock in prices rather than buy currency at the last minute to meet their needs.