Jamaica’s inability to stabilise exchange rate

THE EDITOR, Madam:

The announced departure of Nigel Clarke, the minister of finance, to the International Monetary Fund, is a good time to review how well or badly we have done in managing the country’s foreign currency exchange rate since abandoning the pound sterling/Jamaican pound for the Jamaican dollar.

September 8, marked the 55th anniversary of the decimalisation of our currency and birth of the Jamaican dollar. We changed from using the Jamaican pound and the pound sterling as our official currencies.

Since introducing our Jamaican dollar, its value has declined by some 13,132 per cent against the US dollar. In 1970, US$1 traded at an average rate of J$1.20 (Bank of Jamaica website). At today’s date US$1 equals J$158.78 .

When we contrast the preceding 129 years, from 1840 to 1969 during which Jamaica used the Jamaican pound, we suffered no significant devaluations against the US dollar. Had we decimalised and remained anchored to the pound sterling, one Jamaican pound today or simply £1.00 would be equivalent to US$1.31 today. £1.00 was equal to US$2.39 in 1970 – a decline of only 82.44 per cent against the US dollar, compared to the Jamaican dollar 13,132 per cent depreciation.

GOOD FINANCE MINISTERS

Jamaica has had some good ministers of finance and two exceptionally good finance ministers in the persons of Dr Peter Phillips and Dr Nigel Clarke. They both did good jobs in helping to formulate and manage the monetary and fiscal policies of the country during their tenures. Neither of them were able, however, to stabilise the exchange rate of the Jamaican dollar for any extended period. The reason is not difficult to discern. Both esteemed gentlemen had a very difficult foreign currency management framework within which to operate, called a floating exchange rate regime.

The stability of the Jamaican pound over its lifetime was as a result of the issuance and management being under its currency board.

Jamaica should once again dollarise the national currency, but this time around we should also give consideration to using the US dollar, euro, or the 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 it being tied to a strong reserve currency, has an inherent problem of frequent depreciation and high inflation.

The Bahamas has a long and successful history of tying their dollar to the US dollar on a one-to-one parity basis. Jamaica cannot continue with creeping depreciation of the Jamaican dollar.

NORMAN MARSH