Floating exchange rate best for Jamaica, study finds

Gary Spaulding, Senior Gleaner Writer

A floating exchange rate instead of a fixed one is the way to go for Jamaica, a study aimed at determining an optimal exchange rate regime that is most suitable to Jamaica's realities has found.

Professor Vanus James, who led the study, announced at the conclusion of a presentation of the evidence to support his case, that a managed float under certain conditions was the best route to pursue.

James stressed: "The best approach is to operate a managed float under conditions in which the policymaker tackles the problems of expensive imports and industrialisation in collaboration with the international economy and in a context of improving systems of joint decision making."

The study, which was commissioned by the Edward Seaga Research Institute, found that real exchange rate, rather than the nominal, appears to be the main issue in the sustainability of Jamaica's economic growth.

Speaking with The Gleaner after the presentation, Seaga, who has constantly mooted for a system of pegged exchange rate, said the study and findings provided food for thought.

But key stakeholders in the financial and economic sectors were critical of policymakers for what they characterised as the lack of interest in studies, evident in their absence from yesterday's unveiling of the findings of the study, the Exchange Rate, Economic Structure and Economic Performance in Jamaica.

Noted banker Aubyn Hill and economist Dennis Chung bemoaned the lack of participation from policymakers.

The study sought answers to three questions:

Is there a relationship between the exchange rate regime and economic performance such as inflation, restructuring and growth in Jamaica?

Can the performance cost of varying rather than fixing the exchange rate be determined? If so what is it?

What is the optimal exchange-rate regime for Jamaica - a floating or a fixed?

James is a honorary senior research fellow at the University of the West Indies (UWI), Mona. He is a graduate of the UWI, where he obtained his BA in economics. He earned his Master's in Economics and his PhD degrees at the New School for Social Research in New York. His post-doctoral studies were pursued at the University of Michigan, USA, Auburn University, Auburn, Montgomery, Alabama and Hofstra University, New York.