Editorial | Jamaican dollar turns 55

The Jamaican dollar turned 55 earlier this month. But it was not the happiest of birthdays, for, on September 8, the local currency stood at J$158.82 to US$1. There was no cause for celebration.

The stunning reality is that, over the span of 55 years, the Jamaican dollar has depreciated almost every year, moving from J$1.20 to US$1 to its current position, edging toward the 160-dollar mark.

Consumers understand all too well the impact of a sinking dollar and what it means for their ability to procure goods and services to carry on with their daily lives. With every depreciation, they have to worry about the cost of electricity and fuel, interest on loans, rent and mortgages and imported necessities like pharmaceuticals. In other words, their purchasing power plunges with each devaluation.

Because the currency is such an important determinant of a country’s economic health, the movements of exchange rates are steadily watched and analysed. As part of the fiscal management of the economy, interest rates, inflation and exchange rates are highly correlated. Expectations are that the Bank of Jamaica will exert influence over these factors, and, from time to time, it has intervened in the market. What we see mostly is a Central Bank whose energies are firmly fixed on maintaining a targeted inflation range of four to six per cent, while the value of the currency is slipping. Indeed, persons are suggesting that, on his way out the door, it is imperative that Finance Minister Dr Nigel Clarke initiate a serious conversation about the management of the Jamaican dollar, and that this be fully addressed by the new minister of finance.

In a recent letter to this newspaper, reader Norman Marsh suggested: “Jamaica should once again dollarise the national currency, but this time around we should also give consideration to using the US dollar, euro or pound sterling (GBP).

“The majority of small countries such as Jamaica, and even some that are much larger, trying to operate their own currency without being tied to a strong reserve currency has an inherent problem of frequent depreciation and high inflation.”

NOT THE PREFERRED MEDIUM

Even though the Jamaican dollar is the official currency, it cannot realistically be called the preferred medium of exchange. From restaurant menus to real estate properties and academic courses, prices are being quoted in US dollars and displayed right alongside the Jamaican equivalent. In fact, one of the questions being asked of consumers tendering credit or debit cards is whether they wish to pay in US or Jamaican.

Is Jamaica making a mistake by sticking to its inflation-targeting regime? Those touting devaluation have repeatedly argued that the Jamaican dollar is overvalued; that devaluation will spur exports, reduce the sovereign debt burden, and make Jamaica more competitive. But, as we can clearly see, even when some of those objectives are met, there are unintended consequences that ultimately defeat the purpose.

Undoubtedly, there is some amount of pride in having a national currency. In the same vein as a national airline, perhaps. When a country develops its own currency, its monetary policy is not controlled by a foreign currency. Yet, the exchange rate tells a story about the strength of a country’s economy, for it affects trade, investments and performance.

The dollarisation argument which has been often posited by market observers has resurfaced again, and maybe this ought to be fully examined, including its risks and merits, for it appears to be working well for 11 foreign countries.

Right here in the region, we have examples of stable currencies such as The Bahamas, our sister CARICOM country whose economy is powered principally by tourism and off-shore banking. The Bahamian dollar, the BSD, replaced the British pound in 1966, and is pegged on a one-to-one basis to the US dollar. This makes the two currencies interchangeable. It has been holding for 58 years.

Weak currencies indicate poor economic fundamentals. This creeping devaluation is harmful to a significant portion of the population, and it needs to be fixed.