During the weeklong celebrations of the 50th Jubilee Celebrations of our Independence from Britain, there has been a commendable focus on several institutions of independence – the constitution, and Presidency – but especially the symbols of modern “nationhood”: the flag, motto, National bird, animal, etc. But there is one institution that has received almost no mention even though it is one of the linchpins of Guyana’s independence: the Bank of Guyana (BoG).
As with the army, it was formed in the year before independence because, just as the former was essential to guarding our physical sovereignty, the BoG was key to securing our economic security. On October 16, 1965, it was launched under the Ordinance that defined its goal: “Within the context of the economic policy of the Government, the Bank shall be guided in all its actions by the objectives of fostering monetary stability and promoting credit and exchange conditions conducive to the growth of the economy of Guyana.”
Specifically it was now mandated to: “have the sole right to issue and redeem notes and coins; act as banker to the commercial banks; act as fiscal agent and trustee of a banker to the Government and; administer payment agreements entered into by the Government.”
Most Guyanese today would not remember that at independence we stopped using bills and coins that had previously been issued by the British Caribbean Currency Board (BCCB) and used by other Caribbean territories.
This money that is issued by our government is not backed by the possession of any physical asset such as gold as was done up to 1970 by the USA. It simply is used by citizens as money because the government so decrees and its value relative to the currencies of other countries is supposed to rise and fall with supply and demand for it just as with rice and sugar.
This means, if for instance, the US (or countries that use US dollars) does not want to buy goods from us for which it has to use Guyana dollars, the demand for the latter will fall and reflected in its higher conversion rate for US dollars.
During the 1970s as our economy collapsed the government kept on printing Guyana’s currency bills and we had a classic case of “too many dollars chasing too few goods” which results in the value of the currency dropping (inflation) – as does the conversion rate with other currencies (currency depreciation).
The PNC government had to introduce currency to maintain an artificial conversion of G$2.50 to US$1. All such transactions had to pass through the BoG.
The Government under President Desmond Hoyte began systematically devaluing the Guyana dollar vis a vis the US’s dollar to $4.86 in 1986 and eventually to $45 in 1990. By 1991 Hoyte removed currency controls and Cambios joined the BoG and other banks in currency conversions. The real value of the Guyana dollar (based on supply and demand) settled down to G$125 to US$1. In the following twenty years it depreciated further to hover around $200.
Reacting to the disaster in allowing the government unbridled power to print money, and the evolving liberalised international financial environment, new regulations were passed to define the tasks of the BoG.
The latest statement is: “Its primary purpose is to formulate and implement monetary policy so as to achieve and maintain price stability. The other major purpose is to foster a sound, progressive and efficient financial system. In the discharge of its functions the Bank strives to: Promote a sustained and non-inflationary growth of the economy; maintain the integrity and value of the Guyana dollar and secure the credibility of the financial system, including payments arrangements, through supervision and oversight.”
Of recent, however, questions have been raised in jurisdictions similar to Guyana, whether Central Banks should not follow the US, where their “Fed” is also mandated to also facilitate “full employment” through its monetary policy.