The value of the Jamaican dollar is at historic lows, but Finance Minister Nigel Clarke is bullish about its future prospects.
Clarke said on Wednesday that the successful execution of an inflation-targeting regime should allow Jamaica, within five years, to be able to offer its first Jamaican-dollar bond to international borrowers – a goal that economic experts and strategists polled by the Financial Gleaner believe is realistic and would serve to further raise the country’s economic profile.
The minister also reported that foreign holders of Jamaica’s sovereign bonds denoted in US currency were receptive to the idea of a JMD issue at a roadshow he recently headlined overseas.
A Jamaican dollar float would require investor confidence, and economist Damien King believes Jamaica is headed in the right direction.
“The reason most countries cannot borrow in their own currencies internationally is that the lenders have no faith in the long-run value of their currencies. If a loan is denominated in Jamaica dollars for, say, J$1 million, when it matures many years from now, how much in US dollars will that Jamaican million be worth?” said King, who heads think tank CaPRI and lectures in economics at The University of the West Indies.
“Low, predictable inflation addresses that problem. Low inflation, which is the goal of inflation targeting, is the foundation of long-run exchange rate stability. It is therefore also the foundation of that potential international lender having confidence that the money he lends in Jamaican will have retained its (US dollar) value when the loan is repaid,” he said on Thursday, when asked for comment on the minister’s goal.
Economic Programme Overnight Committee, EPOC, co-chair Keith Duncan also believes “it’s a can-do” once the fundamentals of low inflation and “fairly compact” interest rates are in place, and Jamaica holds to its fiscal targets.
“It’s definitely doable once we keep our fiscal targets in line, staying with the fiscal rules, keeping our inflation targeting in place and also building the institutional framework, such as the independent central bank. Other countries have done it, once they have increased confidence in their fundamentals and built confidence on the international market,” said Duncan, who also heads large financial conglomerate JMMB Group.
“Brazil did it … I would say we can probably do it within five years,” he said.
The value of the Jamaican dollar to its main trading counterpart, the US dollar, fell to a historic rate of $138.10 on July 18. The minister said the movement was market-determined. The JMD’s best rate for this year was $124.76 on March 13.
The value of the Jamaican dollar falls when the exchange rate rises. At the current rate, it is worth less than 1 US cent or U$$0.007.
Leave A Comment