One of the remarkable features of the Guyana Dollar over the past ten years has been its stability. While the same can be said for Barbados and the OECS countries, their currencies are pegged to the United States Dollar. The Trinidad and Tobago Dollar has also enjoyed stability but Jamaica is very different as the following graph shows.
Recent trends raise some concern whether the Guyana Dollar can maintain that stability and whether the statement by the Minister of Finance that key exchange rates remained stable throughout the year. At end of the year, the Guyana Dollar was being traded against the US Dollar at $206.25 compared to $204.5 a year ago. This may not seem a significant movement but it is among, if not the highest decline for the past ten years. And it is the official Bank of Guyana rate – not reflective of the market rate that reportedly reached as high as $214. Indications are that the Government which sees everything through political lens, is concerned about the recent trend.
The Minister reported that transactions on the domestic foreign exchange market contracted by 5.8 percent to US$6.4 billion, which seems hardly consistent with the reported growth in the economy. What we do know is that the exchange rate was under pressure for most of 2013 as a result of currency shortages resulting in both the bank and non-bank cambios experiencing increases in their buying rates and passing those increases on in their selling rates.
There is ample room for rational speculation but in official circles the explanation is attributed entirely to the falling price of gold despite higher production levels in 2013. The tightness in the foreign exchange market was also due in part to lower foreign exchange earnings from sugar attributed to lower production, and lower remittances. The part that was left unsaid was the high quantity of gold that we had on hand and from which we surely suffered losses due to the falling prices.
Conventional wisdom too is that the value and volume of transactions by the non-bank cambios are declining. We believe that such a view ignores the substantial amounts of undocumented transactions. We believe therefore that predictions of the demise of the non-bank cambios are grossly exaggerated and, in fact, that they contribute to the rate stability.
While theories abound – including the uncertainty over the amendments to the “Anti-Money Laundering Act” and the role of the Chinese and their own style of business and savings – one fact is known: the Bank of Guyana regularly intervenes in the foreign exchange market with a view to defending the exchange rate. Reports are that the Bank of Guyana injected some US$162 million from its foreign reserves into the foreign exchange market during last year.
We predict that in the near term there will be further pressure on the Guyana Dollar with the Bank of Guyana continuing its intervention. No doubt, at some point the Bank of Guyana will have to decide whether such a course can be pursued indefinitely. While Ram & McRae does not believe that such a change in policy is imminent, it does believe that businesses will have to pay closer attention to their foreign currency exposure and take action to minimise losses due to any decline in the exchange rate.
