Central Bank Governor Dr. Gobind Ganga will be meeting with banking representatives next week to sort out several issues concerning Foreign Exchange. This is expected to also become a regular feature.
Finance Minister, Winston Jordan, said the meeting will focus on issues “such as how the Central Bank will continue to support them to get over this hump, which we all agree is usually a dry period for the supply of foreign currency. Even in good times, January and February are always tough months. They are going to meet and determine on their side what they are going to do and on the Central Bank side, how they would support them.”
The minister briefed the media on Friday, March 24, 2017, following a meeting with the banking association’s representatives at the Ministry.
Several concerns have been raised in recent weeks concerning a shortage in foreign Currency. However, the issue has received increased attention following a statement from the Manufacturers Association on Wednesday, March 22, 2017. The Manufacturers have pegged the selling rate for US at $230 for US$1. The Central Bank clarified that this only obtains for debit and credit card transactions.
According to Jordan, the recent currency fluctuations are being driven by several known gold producers and exporters and additional players. He added that other players or ‘demanders’ of foreign currency are now in the market and there appears to be hoarding taking place.
The Bank of Guyana on Thursday (March 23, 2017) noted that there has been hoarding of foreign exchange by exporters, as evidenced by the large foreign currency balances that are being held in their exporters’ retention accounts.
Jordan said, “Some of the dealers in gold are not necessarily declaring all that they could, and some of them do have foreign retention accounts. Those are some of the reasons that they put forward.”
It was also raised by the banking representatives that there is some mismatch between supply and demand, Minister Jordan added, at the level of individual banks.
“Maybe when you put it together what they are suggesting is, they know what is happening in their bank, but they don’t know what is happening in other banks but they don’t know what is happening at the total macro level.”
The Finance Minister said banks would be expected to “weed out” what he described as an illegitimate need for foreign currency.
A solution put forward by Minister Jordan to ease the current currency fluctuations is that Central Bank would first seek to persuade those account holders to use their funds, “instead of purchasing from the market to avoid a run on the rate.”
If that fails, he noted the Central Bank’s Board would have to consider ordering the closure of those accounts, “We don’t want to use a heavy hammer to kill an ant really, but what I’m saying it is a tool that is available to you. In other words, what the government has done so far is urge moral suasion but I mean there’s a limit to moral suasion at a time when the rate will deteriorate then you have to do more than just moral suasion.”
The banks had in the past tried to manage the rate at GYD$210 to US$1.00, Jordan said. It was explained that in December there were some actions, individually that would have allowed for this continuous bidding hence the tacit agreement that the rate would be set around $210 to US$1.
Lending support to the Minister was Dr. Ganga who noted that while Guyana lost US$30M to US$40M in foreign exchange earnings in 2015 from rice, sugar, bauxite and forestry, the Central Bank injected approximately US$30M on the market to satisfy foreign exchange demand, during that period.
Asked about the amount of US dollars Central Bank has injected into the local market for the year and the amount thought to be “hoarded” by some exporters, Dr. Ganga replied, “We know what the figure is, but I can’t tell you what the figure is.”
The Finance Minister is in the meanwhile, appealing to the media to stop fuelling speculation in the foreign exchange market as this could result in a further devaluation of the Guyana dollar which would, in turn, fuel inflation and leads to increasing interest rates.