Mon | Sep 24, 2018

Letter of the Day | What role for currency speculators in 'fixing' rate exchange

Published:Thursday | October 26, 2017 | 12:00 AM


Recent public utterances by Central Bank governor, Brian Wynter, and Jamaica Manufacturers' Association (JMA) and Private Sector Organisation of Jamaica (PSOJ) leaders, Omar Azan and Dennis Chung, about the effect of the Bank's new FIXIT currency (supply/demand) management system, have raised a question or two, in my mind.

Mr Wynter spoke about the ongoing positive effect of Bank of Jamaica Foreign Exchange Intervention and Trading Tool (B-FIXIT), in reversing the hitherto chronic downward slide of the value of Jamaica's currency in relation to the US Dollar and other foreign currencies.

At the same time, he took a thinly veiled jab at unnamed persons who he suggested must have lost millions of dollars, recently, in "betting against" the Jamaican dollar. This, by speculating that the Jamaican dollar would continue its one-way slide, even with the presence of B-FIXIT, thus enabling them to gain windfall profits, on their foreign currency investments, especially in buying/selling US dollars

But while agreeing with Mr Wynter that there was heightened pressure on the Jamaican dollar, even with the central bank's intervention in the market with B-FIXIT, Messrs Azan and Chung expressed the view that central bank "interference" in the foreign exchange market, even under "B-FIXIT", will not bring a permanent solution to the issue of Jamaica's hitherto ever-downward sliding dollar, but will be a continuing cause of the problem.

There should be little or no "interference" by the central bank in a "free" currency market, but the currency(ies) should be allowed to find their own "equilibrium".

Here, then, are my questions, for Mr Brian Wynter, and for Messrs Azan and Chung:

1. Is there a role in the foreign exchange market, or in foreign exchange management procedures, for "unofficial/private speculators"?

Should the central bank and the Government allow unofficial private, totally self-interested "speculators" free reign to influence the market and be influenced by negative rumours, etc., regardless of what else is happening in the economy and/or what else might be true?

2. And what about the role and effect of increased and/or increasing economic growth and favourable import/export and foreign exchange-earning performance?

C. Anthony