debut: 12/22/15
8,325 runs
Jamaica is managing two official currencies. The Jamaican dollar, by force and authority of the Government, without regard for the wishes or desire of the people, continues to be an official currency, despite the fact that as a store of value, it loses value almost daily and is not preferred as a medium of exchange.
Our other official currency, the United States dollar, is the currency of choice, both as a store of value and a medium of exchange in transactions. Jamaicans will only exchange their coveted US dollar for the Jamaican dollar in a case of need.
As a store of value, the Jamaican dollar is shunned, and only used as a medium of exchange for small to medium transactions. All large real estate sales, and big-ticket transactions, almost always occur in US dollars these days. Small craft vendors, food vendors and others who sell along the north-coast and other tourist areas of the country, only sell in US dollars, you pay in USD and they return your change in USD, also tips at any restaurant are paid mainly in USD. About a year ago the Bank of Jamaica had to reduce the large amount of USD floating in circulation. So, many in Jamaica are suggesting why not convert fully to USD as the official currency?
The high inflation and mismatch between how much foreign exchange Jamaicans spend and earn is arguably the root of our dollar’s depreciation. So should anything be done about it?
Persons often look to the government to stabilize their currency. In Jamaica, this usually means increasing the supply of US dollars in the market. But where does the Jamaican government get US dollars to do that with?
It has to buy them. Just like many of us.
The Bank of Jamaica (BOJ) does not print US currency. So it cannot directly control how much US currency is in the market. Instead, it buys US dollars from persons who have them, like exporters, investors, or other persons and organizations that would like to trade US dollars for Jamaican dollars. So the BOJ gets US dollars at a cost.
If the government kept a fixed exchange rate, it would be willing to trade any quantity of US dollars and Jamaican dollars at one constant price always, regardless of what the market says.Meaning: if it pegged the currency 1:1, it would trade at 1:1 even if the market says US dollars are scarce and should trade at 1,000:1. Therefore, the BOJ would pay J$1,000 for US$1 on the market, and then sell that US$1 to the public for J$1.
That’s like someone buying something for $1,000 and selling it for $1—it’s just not sustainable. But that raises the question: where do countries with pegged currencies get the money to do that?
Some just do not have very volatile exchange rates, so the need to buy or sell at a loss or profit hardly comes up. Others borrow money to fund it. That creates a different problem—how to pay it off.
Source: Excerpts from Norman Marsh | Unnecessary poverty and hardship …Who is devaluing the Jamaican dollar? - Jamaica Gleaner.
Our other official currency, the United States dollar, is the currency of choice, both as a store of value and a medium of exchange in transactions. Jamaicans will only exchange their coveted US dollar for the Jamaican dollar in a case of need.
As a store of value, the Jamaican dollar is shunned, and only used as a medium of exchange for small to medium transactions. All large real estate sales, and big-ticket transactions, almost always occur in US dollars these days. Small craft vendors, food vendors and others who sell along the north-coast and other tourist areas of the country, only sell in US dollars, you pay in USD and they return your change in USD, also tips at any restaurant are paid mainly in USD. About a year ago the Bank of Jamaica had to reduce the large amount of USD floating in circulation. So, many in Jamaica are suggesting why not convert fully to USD as the official currency?
The high inflation and mismatch between how much foreign exchange Jamaicans spend and earn is arguably the root of our dollar’s depreciation. So should anything be done about it?
Persons often look to the government to stabilize their currency. In Jamaica, this usually means increasing the supply of US dollars in the market. But where does the Jamaican government get US dollars to do that with?
It has to buy them. Just like many of us.
The Bank of Jamaica (BOJ) does not print US currency. So it cannot directly control how much US currency is in the market. Instead, it buys US dollars from persons who have them, like exporters, investors, or other persons and organizations that would like to trade US dollars for Jamaican dollars. So the BOJ gets US dollars at a cost.
If the government kept a fixed exchange rate, it would be willing to trade any quantity of US dollars and Jamaican dollars at one constant price always, regardless of what the market says.Meaning: if it pegged the currency 1:1, it would trade at 1:1 even if the market says US dollars are scarce and should trade at 1,000:1. Therefore, the BOJ would pay J$1,000 for US$1 on the market, and then sell that US$1 to the public for J$1.
That’s like someone buying something for $1,000 and selling it for $1—it’s just not sustainable. But that raises the question: where do countries with pegged currencies get the money to do that?
Some just do not have very volatile exchange rates, so the need to buy or sell at a loss or profit hardly comes up. Others borrow money to fund it. That creates a different problem—how to pay it off.
Source: Excerpts from Norman Marsh | Unnecessary poverty and hardship …Who is devaluing the Jamaican dollar? - Jamaica Gleaner.
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