Sun | Sep 25, 2016

Protecting the value of your dollar - 10 ways to stay ahead

Published:Sunday | February 21, 2010 | 12:00 AM

1. Buy gold. Gold tends to track crude prices, so the metal can be bought as a hedge against oil-led inflation.

2. Find a US dollar or Euro income source. Save and invest in hard currency.

3. Hold on to real estate,

the value of which has proven to be among the most resilient investments locally. If possible, make improvements which will permit rental and therefore, provide an additional source of income.

4. Grow your own food or support community initiatives to do so. This will reduce your vulnerability to international commodity-price movements. Cut back on imported inputs in your lifestyle/business.

5. Go solar or

use other non-petroleum energy sources.

The upfront costs might be a bit high,

but eventually, you will realise massive savings.

5. Ensure the vehicle you buy is not a gas-guzzler, or investigate the possibility of travelling by public transport. You will save on gas, maintenance, insurance and avoid road rage as well.

6. Store essentials not only for the hurricane season, but against future price increases. Remember to use from older stock first and replace with new as time goes by.

7. Reduce your exposure to financial disaster by making property improvements and buying assets from your own savings instead of borrowing. Avoid loans for consumption purposes but to acquire assets which will improve in value over time.

8. Sickness can be a big


on personal funds if you have to be making multiple trips to the doctor. Exercise regularly, eat balanced meals and take your vitamin C, calcium and other supplements. Cut back on the use

of condiments, sugar and


9. Never ignore a really good sale. It is sometimes possible that what you buy can be re-sold at a profit later.

10. Investigate all income-earning possibilities, including providing services in your local community which neighbours will be willing to pay for. Remember as well to be the Good Samaritan to your clients

and neighbours as customer loyalty will arise from the perception of goodwill,

as against the view that there

is a Shylock next door.

  • Your spending power in 2010

The reduced amount of food that you are able to buy with $2,000 now compared to what it could purchase at sometime in the past may have given you an idea of the massive reduction in your spending power over the last few years.

The reduction in spending power, demonstrated by movements in the consumer price index (a measure of the size of the basket of goods and services your money is able to afford) between January 2007 and October 2009 was 47.5 per cent. This means that essentially, your dollar is

now worth about one half of what it was valued at the start of the period.

Possible causes

The last three years have provided a sharp lesson in what time and circumstances can do to your personal finances. Let us take a look at some of the possible causes of this massive financial erosion and make some suggestions as to what one could do to guard against similar dollar-value decline in the future.

Dr Wayne Robinson of the research and economic programming division

at the Bank of Jamaica (BOJ) has said that the greatest cause was the movement of international commodity prices and its ultimate impact on the basket of goods on which one usually spends money.

In 2009, there was as well, an overall limited ability to earn more, which cut into people's ability to be compensated for eroded purchasing power.

Higher inflation played a major role in purchasing-power decline in the three-year period, especially in 2008.

This, in turn, was affected in part, by

adverse weather in 2007, including hurricane and flood conditions, followed by a three-month-long drought in 2008. This greatly reduced the supply of agricultural produce, sending prices sky-rocketing. It was a primary cause of inflation.

Next was the 2008 shock to inflated international commodity prices, especially oil prices. In September 2008, oil prices rose above US$100 a barrel, coming from just under US$80 at the same time the previous year. The sharp increase had a direct impact on energy and transport costs here in Jamaica. With the price of international crude oil passing through very quickly to electricity rates and the price of petrol, the pocket of consumers felt the pinch almost immediately.

Secondary impact

Consider also, the secondary impact, as

higher oil prices fed into increased general production costs.

According to Dr Robinson, the third major impact, especially in the second half of 2008, was the

shock to other commodity prices, this time including wheat, rice and corn. Corn was affected by the higher price of oil, as it became an alternative source of generating fuel. Wheat was affected by adverse weather and the global food-crisis scare. The price of rice also rose as rice-producing nations cut back on exports. Within the same period, fertiliser prices shot up and affected the cost of domestic agricultural inputs and farm-gate prices.

A significant depreciation of the Jamaican dollar

occurred in the last quarter of 2008. Before then, it declined in a much more manageable way, the central bank analyst said. With the onset of the global financial crisis in September of that year, spill-over effects began to be felt in the Jamaican market. Brokers suffered margin calls and credit lines dried up. Global credit became scarce, and earning activities and income were reduced.

Cautiously optimistic

With the reduced prospects for tourism and remittances, the local market reacted with a sharp increase in the demand for the US dollar.

In its July to September 2009 quarterly monetary report, the BOJ

was cautiously optimistic. "The economic recovery in the US, Jamaica's main trading partner, bodes well for an improvement in the demand for exports. However, continuing concerns regarding the high levels of unemployment in the advanced economies resulted in subdued demand for Jamaica's alumna and tourism,"

the report stated.

Now, the outlook for the world economy is cautiously optimistic. There are signs that the adverse global economic conditions that

  • Jamaican dollar values 2000-2009

2000 USD$1.00 = J$43.08

2001 USD$1.00 = J$46.08

2002 USD$1.00 = J$48.54

2003 USD$1.00 = J$57.93

2004 USD$1.00 = J$61.34

2005 USD$1.00 = J$62.50

2006 USD$1.00 = J$65.88

2007 USD$1.00 = J$69.06

2008 USD$1.00 = J$72.92

2009 USD $1.00

= J$89.00

Source: Bank of Jamaica