Though Guyana is experiencing substantial economic growth, both the government and the International Monetary Fund (IMF) agree that the value of the Guyanese dollar should remain the same for now.
Increasing the value of the dollar refers to an appreciation of the currency. The increase of the currency is measured against another currency; for example, increasing the Guyanese dollar against the United States (US) dollar.
According to a report issued by the IMF on Tuesday, both the government and staff of the Fund agreed that exchange rate stability currently serves Guyana’s needs best- particularly given the underdevelopment of domestic financial markets.
“The accumulation of substantial buffers in the Natural Resource Fund will also strengthen Guyana’s headroom to maintain a stable exchange rate,” the report stated.
It was, however, advised that foreign exchange interventions should be used to address disorderly market conditions and to smooth short-term fluctuations in the nominal exchange rate in some instances.
But eventually increasing the money value has not been ruled out.
In fact, the report said that both the IMF staff and the local authorities agree that this can be examined in the medium to long term as Guyana becomes a major oil producer.
It was noted that the country’s monetary policy framework can be revised eventually to allow the exchange rate to absorb external financial shocks and increase its flexibility to maintain competitiveness.
Earlier this year, President Dr. Irfaan Ali explained that if Guyana’s currency changes “overnight”, there will be rapid changes in the cost of items.
Governor of the Bank of Guyana (BoG) Dr. Gobind Ganga elaborated on this.
Essentially, if the value of Guyana’s currency increases – that is, fewer Guyana dollars will be needed in exchange for a higher valued currency like the US dollar – the money raked in from exports will decrease.
And though the cost of imports will reduce with an appreciation of the currency, the Central Bank Governor explained that the country’s expenses may not readily decline.
To illustrate this, he used the example of the exchange rate between Guyana and the US.
If some Guyanese export – be it sugar, rice, gold or otherwise – is sold for US $1 million, the amount received would equate to about GY $215 million using an exchange rate of GY $215 to US $1.
Dr. Ganga, however, noted that if the currency appreciates and there is an exchange rate of GY $210 to US $1, the country would earn GY $210 million instead. Unless the cost of producing those export products reduces, there will be a gap in money received.
