Is a foreign currency crisis brewing?

Feb 14, 2019 Features / Columnists, Peeping Tom

A foreign currency crisis may be brewing. And it is the responsibility of the Bank of Guyana to provide explanations and solutions to the impending crisis.
Businessmen are complaining about difficulties in accessing foreign currency. The shortage of foreign currency notes is causing unease in the business circles and fears of an unofficial exchange rate depreciation.
A privately-owned shipping company, facing a shortage of currency to pay its lines, has asked its clients to consider paying in US dollars. It has also advised its clients that if they do not have US dollars, they can pay in Guyana dollars but at a rate of US1 to G$ 230, which is far higher than the average rate for US dollars in the local market.
If the present shortage of foreign currency notes is not reversed quickly, businesses can find themselves having to pay higher costs not just for shipping but for imports also. This will lead to increased prices and spiral the cost of living.
These fears are not being allayed by the explanations which have been forthcoming by the Bank of Guyana. A senior Bank of Guyana official is reported as denying the lack of foreign currency to undertake international transactions but has confirmed that there is a shortage of foreign currency notes (cash).
The top official was quoted by Demerara Waves as saying that the shortage was not due to reduced earnings from major exports – bauxite, gold, rice and sugar – but because the Bank of America, which was responsible for transporting American dollars to Guyana, has pulled out.
This explanation is not convincing because of something else that is happening. In his weekly column in another newspaper, financial analyst, Sasenarine Singh, has pointed out that the Bank of Guyana last year purchased more than US$180M in foreign currency from the commercial banking sector but only sold back a mere US$8M.
In fact, if you examine the amount of foreign currency which the Bank of Guyana took out of the system last year, including substantial amounts last December, it is far higher than in previous years. In 2013 and 2014, the BOG had no need to take out foreign currency from the commercial banks.
In 2015, it purchased a negligible sum of less than half a million US dollars. In 2016 and 2017 there were only small purchases. What therefore accounts for the more than US$180M which the BOG purchased in 2018?
The BOG needs to explain whether the government’s receipts from the sale of gold, sugar and rice are not consequential enough to satisfy the government’s external debt commitments and whether as a result the BOG is draining the commercial banking sector of its limited foreign exchange.
The excuse about foreign workers having to be paid in foreign currency is not credible. Which foreign workers? This does not explain why the BOG has purchased more than US$180M from the banking system. It does not explain the differential between the forex which the BOG purchased in 2018 and that which it sold in the same year.
Something is not right with our foreign currency market. And the stench seems to be coming from the Bank of Guyana.
That institution needs to intervene immediately to arrest the present shortage of notes. There are many businesses in Guyana which, in order to ensure savings, prefer to do cash transactions. They prefer to deal with cash currency because they can get it at a far lower rate than a telex transaction or bank draft. With notes they can pay their suppliers in cash and avoid having to pay 2% plus bank transaction charges.
The onus is therefore on the BOG to intervene to ensure an adequate volume of foreign currency notes. They should investigate if there are any dealers – banks or cambios – which are hoarding foreign currency.
And the Central Bank should inform the nation if the country is facing difficulties in meeting its debt obligations, and whether this accounts for the large purchases of foreign exchange it made in 2018.

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