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BOJ governor dismisses call for dollarisation
By Julian Richardson
Jamaica Observer Friday, September 04, 2009
Bank of Jamaica (BOJ) Governor Derick Latibeaudiere has dismissed suggestions by some pundits that the country should consider dollarisation as a monetary policy.
Latibeaudiere...country would be too dependent on flow of US dollars
Dollarisation occurs when a country adopts the US dollar instead of its own local currency or in conjunction with it, and is used as an alternative policy to maintaining a floating currency, as is used in Jamaica, or a peg.
The rationale behind the policy is that it may provide a more stable and secure economic climate. Along with former Prime Minister Edward Seaga, its advocates include SuperPlus boss Wayne Chen, who believes that full dollarisation would protect savings and pensions by negating the effects of devaluation and lowering inflation and interest rates toward that of the US.
But Latibeaudiere, at a Lions Club of Kingston luncheon at the Jamaica Pegasus Hotel on Wednesday, said that such a move would make the country too dependent on the flow of US dollars and very vulnerable to external shocks. He said that this would be exacerbated by the fact that there would effectively be no central bank to intervene.
"Although (dollarisation) is an issue, it's really something that people should look at and consider the whole range of consequences," said Latibeaudiere. "What the Federal Reserve has said already is that they're not your central bank, so (Jamaicans) wouldn't have a central bank anymore.
"So, therefore, in that situation, if there were any shocks, disasters or anything that would cause US dollars to leave the country, you would have a depression of a magnitude that you could never even dream of," he continued. "There would be no bumper because I could do nothing about it... It's not a good idea."
The BOJ Governor's comments were triggered by a question by attorney-at-law and Lion's Club member John Thompson on whether the country was being forced to dollarise because of the perceived high number of Jamaicans conducting transactions in US dollars to protect themselves against devaluation of the local currency.
"The Jamaican dollar only comes in when you are buying goods in the supermarket or in the street market, but when you're really buying stuff, you're buying using the US dollar," observed Thompson. "In terms of real estate, as a lawyer, I must admit, that many of my clients are asking that their transactions be denoted in the US dollar."
However, Latibeaudiere, in his response, said that the US dollar actually constitutes less than 30 per cent of the currency in circulation.
The governor added that, by all appearances, Jamaicans have a lot of confidence in the country's own instruments.
"It may not be known, but most of the foreign funds that we claim that we borrow on the international market are funded by Jamaicans," said the BOJ governor. "Jamaicans have tremendous confidence in Government securities and holding Government securities because, come the end of the month, they know that they're going to service their debt."
Latibeaudiere, noting that the foreign currency account amounts to over $2 billion, said most of the foreign currencies that are being held are being held here in Jamaica.
The Jamaican dollar has depreciated by 24 per cent against its US counterpart since September 2008, but has been relatively stable over the last several months.
By Julian Richardson
Jamaica Observer Friday, September 04, 2009
Bank of Jamaica (BOJ) Governor Derick Latibeaudiere has dismissed suggestions by some pundits that the country should consider dollarisation as a monetary policy.
Latibeaudiere...country would be too dependent on flow of US dollars
Dollarisation occurs when a country adopts the US dollar instead of its own local currency or in conjunction with it, and is used as an alternative policy to maintaining a floating currency, as is used in Jamaica, or a peg.
The rationale behind the policy is that it may provide a more stable and secure economic climate. Along with former Prime Minister Edward Seaga, its advocates include SuperPlus boss Wayne Chen, who believes that full dollarisation would protect savings and pensions by negating the effects of devaluation and lowering inflation and interest rates toward that of the US.
But Latibeaudiere, at a Lions Club of Kingston luncheon at the Jamaica Pegasus Hotel on Wednesday, said that such a move would make the country too dependent on the flow of US dollars and very vulnerable to external shocks. He said that this would be exacerbated by the fact that there would effectively be no central bank to intervene.
"Although (dollarisation) is an issue, it's really something that people should look at and consider the whole range of consequences," said Latibeaudiere. "What the Federal Reserve has said already is that they're not your central bank, so (Jamaicans) wouldn't have a central bank anymore.
"So, therefore, in that situation, if there were any shocks, disasters or anything that would cause US dollars to leave the country, you would have a depression of a magnitude that you could never even dream of," he continued. "There would be no bumper because I could do nothing about it... It's not a good idea."
The BOJ Governor's comments were triggered by a question by attorney-at-law and Lion's Club member John Thompson on whether the country was being forced to dollarise because of the perceived high number of Jamaicans conducting transactions in US dollars to protect themselves against devaluation of the local currency.
"The Jamaican dollar only comes in when you are buying goods in the supermarket or in the street market, but when you're really buying stuff, you're buying using the US dollar," observed Thompson. "In terms of real estate, as a lawyer, I must admit, that many of my clients are asking that their transactions be denoted in the US dollar."
However, Latibeaudiere, in his response, said that the US dollar actually constitutes less than 30 per cent of the currency in circulation.
The governor added that, by all appearances, Jamaicans have a lot of confidence in the country's own instruments.
"It may not be known, but most of the foreign funds that we claim that we borrow on the international market are funded by Jamaicans," said the BOJ governor. "Jamaicans have tremendous confidence in Government securities and holding Government securities because, come the end of the month, they know that they're going to service their debt."
Latibeaudiere, noting that the foreign currency account amounts to over $2 billion, said most of the foreign currencies that are being held are being held here in Jamaica.
The Jamaican dollar has depreciated by 24 per cent against its US counterpart since September 2008, but has been relatively stable over the last several months.
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