For the past year, the Bank of Jamaica (BOJ) has systematically been pulling foreign currency out of the market as it polices dollarisation, but while commercial bankers acknowledge that the strategy is working for the central bank, they say it comes at the expense of their business.
The BOJ last increased the reserve requirements for foreign currency by one point to 15 per cent in the June quarter.
But bankers polled by the Financial Gleaner, most of whom spoke only on condition of anonymity, say that due to the types of assets that count as reserves and other regulatory requirements, the result for them is that as much as 29 per cent of the foreign exchange that comes through their doors has effectively been sanitised by the BOJ – meaning they are unable to transact any business with those funds.
To make up for the lost business opportunities, some banks have taken to increasing fees and adjusting interest on foreign exchange transactions. The knock-on effect of that is, customers are less inclined to transact business and save in hard currency.
That effectively is the outcome that the central bank desired. BOJ’s intent is to reverse what it sees as a shift towards dollarisation of local savings accounts.
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