(Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice President of the Lending Services Division.
Mr. Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.)
By Rawle Lucas
Imagine having G$204 billion to spend with the potential of it becoming larger each year. No doubt imaginations are running wild as to what could be done with that kind of cash. Some people might think of buying 87 hotels like Buddy’s and reselling them for handsome profits. Others might look to bring a Disney style theme park to Guyana for fun or buy 11,000 S Class Mercedes Benz and drive a different one in cozy and sensuous comfort each day for the next 30 years. I know that there are still others who would prefer to take it easy and sit at the road corner and sip some beers with willing friends blissfully unaware of where the money was going.
By now readers must be asking where this money is or wondering if this is another tale like that of El Dorado? Believe it or not, this money is real. The money to which I refer is trapped in the banking system in Guyana, unable to free itself to make your wildest dreams come true. It is money whose creation is subject to the policies of the Bank of Guyana (BOG), the strategic self-interest of lenders, the vision and intent of borrowers and the competence of political leaders.
The BOG, also known as the Central Bank, in its role of controlling the money supply in Guyana, requires that all the licensed depositary financial institutions (LDFIs) in the country keep part of their money under its control. The LDFIs include entities like the commercial banks, the New Building Society (NBS) and the trust companies. The major players are the commercial banks which account for over 85 percent of all deposits. The BOG sets the rules and, at present, the banks have to maintain a minimum of 12 percent of their customers’ deposits in reserve. This reserve requirement leaves banks free to create money that is 8.3 times the amount of their excess reserves. They create the money by making loans and advances to households, businesses and the government.