As the Jamaican dollar exchange rate slips to more than $140 to US$1, Bank of Jamaica (BOJ) Governor Richard Byles is stating that it is the high untimely portfolio foreign exchange demands of some banks which are causing the bumps being experienced in the foreign exchange market.
Positing that Jamaica is earning enough foreign exchange to satisfy local demands, Byles argues that these high portfolio demands by banks for acquisitions, investments and other purposes are creating an artificial shortage of foreign exchange, thus creating a spike in price.
He pointed to US$800 million in portfolio demands, in which some banks are heavily buying hard currency, thus creating volatility in the market.
Addressing the Jamaica Money Market Brokers (JMMB) Thought Leadership Breakfast on Wednesday at Courtyard Marriott Hotel in New Kingston, Governor Byles threw out a call to the heads of financial institutions to come and meet with him and his team of central bankers to sit and discuss their FX portfolio needs.
“We want to sit with the financial institutions to see how best we can manage the FX flows in the market.”
He made the point that there is no dire shortage in the FX in market but what is happening is the need for better management of the existing foreign exchange flows.
Byles told the relatively large gathering of financial leaders and business power-brokers that the BOJ has managed to ease the volatility in the FX market, which at one point was measuring eight to nine per cent but has now dropped to five per cent, smoothing out some of the swings that existed.
TWO FINANCIAL INSTITUTIONS IN TALKS WITH BOJ
The BOJ has already publicly stated that it is for the use of forward contracts to lock in the price of hard currency today for future delivery, adding that it gives certainty to businesses that have future foreign exchange obligations to fulfil.
Governor Byles is therefore encouraging banks and other financial institutions to explore forward buying of foreign exchange to address their FX needs and predictability of supply and price.
The central bank governor disclosed that he has been working with two local financial institutions regarding their portfolio demands for foreign exchange.
“We are working with them in setting up a forward market with them to deal with their portfolio demands,” Byles stated.
He opined that a consensus is needed about how to make the FX market robust and work to foster growth and development.
INNOVATION LACKING IN FINANCIAL SECTOR
In the meantime, the BOJ boss conceded that he is most unimpressed with the pace of innovation in the financial sector.
“As it regards innovation, we have slipped behind by being too rigid; I want to see more innovation in the sector,” Byles declared.
Questioned about this lack of innovation in the financial sector, Byles gave an example of the lack offinancial technology (FinTech) companies operating in Jamaica, which would bring about greater financial deepening and inclusion in the sector.
He is encouraging the development of more of these entities in the sector, promising to work with entrepreneurs to bring these entities to life through a pilot programme.
He pointed to the need to reduce cash transactions in Jamaica declaring that FinTech companies can greatly assist in this process.
According to Byles, “we need to replace cash with electronic payments; I am amazed that despite the many cards (credit, debit and others) in circulation, the level of cash is growing in circulation; we need to reverse this and bring more people into the formal sector.”