Over the last few months, there have been persistent reports emanating from the Private Sector, especially from the Georgetown Chamber of Commerce and Industry (GCCI) through its President, that several businesses have been unable to secure US funds in the private banking system to facilitate their foreign transactions. This has been interpreted as a “shortage” of US dollars locally, prompting fears that this might prove to be a brake on our developmental efforts, which are heavily skewed at this time on infrastructural projects with large infusions of foreign-sourced materials and expertise.
The Governor of the Bank of Guyana (BoG) responded adamantly that there is no such shortage, and that whatever inability to facilitate forex payments exists might be due to particular banks hoarding US dollars, while others might be short. In fact, the GCCI president implicitly agreed, since he named specific banks that had US currency, while the bank he dealt with was bereft. The BoG Governor reiterated that we have a free market system, in which transactions are cleared by the market and not through governmental interventions. It must be admitted that the capital markets in Guyana are quite underdeveloped, and present hitches in forex liquidity should spur ongoing initiatives to expand such markets now that our economy is on such a steep growth trajectory starting from its anaemic base.
VP Jagdeo, who has a vast experience in the area from his stints as Finance Minister and as President, agreed. “You have not one market, not an aggregate market, but every Cambio in this country operates like a mini market within the aggregate market. So, it truncates the supply and demand for currency. So, one bank…they would have an abundance of supply, but maybe some other bank may not have the same amount of [foreign] currency at that same time. But if you had an interbank market and they share, or people don’t keep money only for their customers, like some of the banks do, then people would be able to go to another bank and get the currency. So, we have to now work at promoting greater exchanges.”
The BoG’s statutory mandate is to focus on the macroeconomic fundamentals when it comes to finance in “fostering domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.” As such, it keeps its eyes on the big picture, and cannot afford to intervene in what are blips caused by inefficient clearing. The exchange rate for Guyana and US dollars, which has been very steady for years, is proof positive that the BoG’s policies have worked. While business leaders have to identify challenges, they must be responsible, so that they do not trigger what were dubbed “animal spirits” by Lord Keynes to create “runs” on the banking system. As was suggested by both the BoG Governor and the VP, the banks and their organization are members of the Private Sector organisations, and they ought to have been engaged before going to the press.
The VP explained when it would be appropriate for the BoG to intervene: “If we believe that there is a sustained shortage, we have the means to supply the market…but we don’t want to supply the market so that the rate appreciates so a few people can get cheaper foreign currency. We can’t do that. It will go against the macroeconomic objective [of the country.” In fact, taken to its extreme, what the VP alluded to is the classic case of the Dutch Disease against which we have been continuously warned. That is, when excessive US dollars are injected into the system, they strengthen our dollar and make our traditional exports more expensive for the export market.
At this point in our developmental trajectory, with its available forex, the BoG must first take care of our fixed needs for critical imports such as oil, machinery, and the inputs for our infrastructural drive etc.
