Below are comments by readers of www.jamaica-gleaner.com to yesterday's lead story, 'Peg the dollar', which reported on comments made by former Prime Minister Edward Seaga.
Seaga makes very good arguments for pegging the Jamaican dollar to the US currency. The opposing argument is a floating currency allows us to devalue, increasing the costs of imports while reducing the costs of our exports, thereby benefiting the economy. However, since we must import raw materials, particularly the fuel needed for exports, devaluing will also increase these costs. The net effect is likely to cancel any advantage. We should adopt Seaga's suggestion.
I somewhat agree with Seaga, but I'll make the case not to adopt Seaga's suggestion. Here are my three reasons:
1) A country is forced to adopt monetary policy with undesirable domestic effects to maintain exchange levels.
2) This will have adverse effects on trading partners.
3) Jamaica will have to revalue its currency because it hurts both Jamaica and other countries.
If inflation is your concern, peg the Jamaican dollar to the price of gold. DO NOT outsource your monetary policy to the US. They are NOT doing well. Their dollar is on the brink of collapse and they will soon be experiencing significant inflation problems themselves.
This is the best and only idea so far that may stop the rapid erosion of the Jamaican economy. Maybe Seaga should be an advisor to Peter Phillips.
Seaga needs to present the whole picture. What about the negative consequences? I am no economist but it is common sense that every action has positive and negative reactions.
It is time we 'call a spade a spade'. Seaga's presentation yesterday clearly highlighted the periods of decline and degradation of the economy and the administration that was responsible for this. History does not lie and the facts are there. This proves that over the years and at present the PNP has been responsible for high debt, crime, high exchange rate, high interest rate, high unemployment, blatant corruption (Sandals Whitehouse, Trafigura, CAP etc), Finsac, failed education system etc. The JLP, to a lesser extent, contributed, but by no means were they as devastating as the PNP.
The Eastern Caribbean Islands did this over 25 years ago and continue to enjoy the benefit of this pegged currency.
US$1 = EC$2.7