Dear Editor,
Christopher Ram’s response on October 29, 2010 entitled “Business Page statement
derived from Bank of Guyana Report”, in reply to my letter of October 27, 2010 “Ram analysis of the Exchange Rate was flawed” missed the main contention of my argument.
In rebutting Mr. Ram’s Business Page statement…” comparison of the Guyana dollar to the US dollar is not an accurate measure”, I pointed out that any misalignment of the Guyana dollar is captured in the Real Exchange Effective Rate (REER). Unfortunately this is the point Mr. Ram missed in his response as he cited extensively the Bank of Guyana (BOG) report and Table 9.5 to show that the US dollar depreciated against the Canadian dollar by 36.5%, the Euro by 33.8% respectively …to buttress his arguments.
The REER is an average of the bilateral real exchange rate between Guyana and each of its trading partners weighted by their respective trade shares.
The trend of the Guyana dollar based on REER was more or less of an equilibrium in the medium term even though it experienced a depreciation of 10% in late 2009 thus reversing and correcting an earlier appreciation of 11%. This fluctuation reflects the volatility of the US dollar with respect to the Euro, the Canadian Dollar and other major trading currencies. Therefore those exchange rate movements cited by Mr. Ram were taken into consideration in the calculation of the Guyana dollar under REER.
The current debate on the contentious US current deficit with China also brings in to consideration and use the Real Effective Rate of the Chinese Currency that takes into consideration the “Balassa-Samuelson effect” to determine if the Chinese exchange rate is misaligned.
Finally, Mr. Ram in concluding stated that Mr. Rampersaud should know that the “Bank of Guyana Act abolished cents since 1998”. Here again he is incorrect a BOG Notice issued in 1995 stated that “in accordance with subsection (2) of section 21 of the Bank of Guyana Act 1995, No 11 of 1995, notice is hereby given that Bank of Guyana coins of the following denomination 1 cent, 5 cents, 10 cents, 25 cents and 50 cents shall cease to be legal tender in Guyana with effect from May 26, 1996.
There are other issues raised by Mr. Ram that I would like to deal with but which cannot be fully ventilated in a letter as I rest my case.
Yours faithfully,
Rajendra Rampersaud
