Every decade of time can be identified by, or associated with, specific songs or slang or buzzwords that resonate with that period. For those of us growing up, and or, living in Guyana in the late ‘70s and the ‘80s, the two catchphrases were foreign exchange and hard currency. Every single aspect of life was affected, and even ten year-olds understood that the blackouts, shortages of household supplies such as soap, the scarcity of essential food items and the migration of their best friend’s family to North America were linked to these magical terms, the abracadabra of reality.
The government of the day, through the central bank, controlled the flow of the scarce commodity of foreign exchange. Departing passengers were only entitled to leave with US$50 or £5 each and nearly every item, at one time or another was unavailable due to a shortage. An underground market developed for hard currency and American dollars could be purchased (illegally) on the street at the rate of $5.00 to US$1.00, in the early ‘80s, whilst the official exchange rate remained at $2.40 to US$1.00.
The inevitable official devaluation followed and the value of the Guyana dollar continued to slide on the parallel market, which it was felt in some quarters, reflected the true value of Guyana’s currency. With the release of government controls under the Economic Recovery Programme (ERP), the free flow of foreign exchange again played an important role in the fast growing economy of the ‘90s.
In recent times, Guyana’s currency has enjoyed a period of stability. The average rate of exchange of the Guyana dollar to the American dollar in 2004 was $204 to US$1, compared to $205.50 to US$1 for 2016.
The major players have changed over the years. In the ‘80s, the government had strict controls in place and only commercial banks handled foreign currency. The main sources of hard currency were sugar, rice, bauxite and gold (the gold board was set up during this period). Today, the landscape has changed drastically from the dark ages of the ‘70s and ‘80s.
Today, the central bank overlooks a managed float exchange, releasing hard currency into the general circulation supply to maintain a stable rate of exchange. Besides the six commercial banks, thirteen licensed non-bank cambios and money transfer businesses also handle foreign currency. Sugar, a main source of hard currency in the past, is on the wane and appears to be receding from the scene. Gold has become a leading player in the influx of foreign dollars in recent times, although, as of late its price has been on the decline. The amount of declared ounces has reached record numbers in the past year, thus aiding the supply of foreign exchange. Rice and bauxite continue to be sources, though not as large as before.
A virtually nonexistent source of the ‘70s was the remittance player. With the massive migration movement of the mid-to-late ‘70s that continued all through the ‘80s onwards, came a new factor into the mix. The generosity of family members to their relatives ‘back home’ reached as high as US$450 million in 2012 ( this figure is only from documented sources; money sent through other means is not accounted for). Alongside this came the development of the parallel economy which started to blossom in the ‘70s and early ‘80s, and became the supply chain for lots of basic foodstuff and car parts. This trading exercise eventually spilt over into other illegal activities, from where lots of hard currency found its way into the financial system.
On the other side of the coin, new investors who came to Guyana and provided another source of funds initially, today are established entities which are remitting their profits to overseas offices. Meanwhile, the current government has focused on the parallel economy, monitoring it as closely as it can. In the 2017 Budget, the government announced it expected a drop in remittances from abroad and new taxes for the gold mining industry, the latter of which was not well received, as was expected.
Minister of Finance Winston Jordan went to great lengths recently at the opening of the Citizen’s Bank Head Office to quell rumblings in the media that there was a shortage of foreign exchange on the local market. He noted that the foreign reserve balances held by the central bank at the end of 2016 were US$616 million as compared to US$598 million at the end of 2015, and that the commercial banks’ foreign reserves were up to US$315 million. He further pointed out that the central bank had sold US$30 million to the commercial banks in 2016 to smooth out spikes in seasonal demands.
Last Thursday the government announced plans to introduce stricter regulations and closer monitoring of the foreign exchange market. Minister of State Joseph Harmon confirmed that an overseas-based entity had remitted over US$100 million to its foreign accounts, and it will be sanctioned. Government declared that it was aware of hard currency issues in the region affecting Venezuela, Trinidad, Barbados, Jamaica, Brazil and Suriname, and that businesses here had been making use of the foreign exchange market in Guyana to assist their counterparts. The central bank confirmed that it is aware of the fact that the bigger companies have been buying large quantities of foreign exchange as of late.
The rate of exchange at the cambios has crept from $206 to US$1, to $215 to US$1 over the last few weeks. The government continues to deny that there is a shortage of foreign exchange. Is there a short term shortage or a scarcity of foreign currency, or is the market going through an adjustment which will result in a new price for the Guyana dollar?
Hard currency and foreign exchange are in circulation in the everyday lingo again.
