Is the Guyana dollar undervalued?

Nov 27, 2016 Letters

Dear Editor,
The USA dollar is backed by gold reserves (over 70% of their currency reserves is gold). This is the fundamental element that made their currency strong. Currencies such as the Euro are also supported by key European member states gold reserves. For example France’s, Germany’s and Italy’s reserves are made up of over 60% gold. Guyana should take advantage of the current opportunity to build our own gold reserves and allow our currency to strengthen. This should be doable as the current annual gold export revenue is close to the value of our foreign exchange reserves.
Guyana has been selling gold (top export) as a commodity with no value added products being made from it (value added products earn more profit) for USA dollar income in order to buy oil from overseas (top import). Keep in mind that the USA dollar is debt heavy and their economy is growing slower than ours. In other words, Guyana is trading sustainable wealth (gold) for an unsustainable consumable resource (oil) without improving the buying power of the Guyanese dollar. It is my opinion that the current strategy is not one that will be winnable over the long term.
Instead we should pursue a stronger Guyanese dollar supported by a healthy gold reserve, value added exported products and a low to zero debt policy (avoiding the risk which the USA is now exposed to) all within a low inflation environment. Low inflation being another key element to ensure that the buying power of the Guyanese dollar is strengthened and maintained. There is less need to overcharge for local goods in the trade embargo free environment which we enjoy today (let’s continue to avoid the Venezuelan reality) and more importantly if the mantra of quality over quantity is continued, a low inflation environment will be sustained.
Once the buying power of the Guyanese dollar has increased we will be able purchase oil imports at a relatively cheaper price. Also there is an economic value to keeping our oil reserves in the ground as seen in the Climate Finance discussions held by the Climate Change Expert Group (CCXG: primarily made up of developed nations). This economic value for keeping our oil in the ground would also add to the value of the assets in the reserves backing our currency and help strengthen it.
In addition, as we transition to a sustainable clean energy economy our oil consumption levels will reduce significantly. This will increase the savings of the country (less foreign exchange used to buy oil) which also strengthens our dollar, and reduce the need to sell off valuable assets cheaply (without any value added).
Most importantly, a strong Guyanese dollar policy will mean that it will be easier for every family to be able to buy what they need with their current salaries while also improving the quality of the products they can purchase over the long term. Remember that not too long ago we were a nation whose currency was 2 to 1 compared to the USA dollar and less than 5 to 1 compared to the British Pound.
Jamil Changlee

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