Is someone playing Mickey Mouse with our foreign exchange markets?

Feb 27, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – Guyana is the fastest growing economy in the world. We are supposed to be earning hundreds of millions of United States dollars in oil revenues each year. But where is this money that we are earning going and how is it impacting on the strength of the dollar.

The Guyana dollar has appreciated slightly over the past three years.  It has appreciated by about 6%. But yet, the prices of imported items continue to increase despite freight rates – the main source of increased imported inflation – having fallen in recent months. From all accounts, the country’s finances are in good health. We are told about the large sums held in the Natural Resource Fund that are parked overseas. So why then are our businesses complaining about problems with the availability of foreign exchange?

The Bank of Guyana denies there is a problem. It says there is sufficient currency in circulation. So is someone playing cat-and-mouse with our foreign currency?

Businesses have said that the commercial banks have been telling them that currency will be made available to them as soon as the banks have enough currency. The banks depend on Bank of Guyana and on the buying from the cambios to meet the needs of their customers. So it obvious that there is a problem but whether this problem amounts to a shortage is not certain.  So what could be the problem? For one, a small number of private individuals along with the Bank of Guyana play an important role in the foreign exchange market. These individuals and their firms can create instability in financial markets. If some of them do not release foreign currency or repatriate their gold earnings, the entire system can go into turbulence.

This is why there is need for a study of the foreign currency markets to ensure that it is not subject to oligarchic control. If a few firms can dominate the buying and selling of foreign companies, then it means that the entire economy can be held to ransom. The second feature of our foreign currency market is its openness. There are little to no restraints on companies remitting foreign currency and therefore it is possible for foreign companies as well as local businessmen to be sending massive sums of money overseas.

In the latter part of 2019, there was a similar problem with foreign currency shortage. That’s the time the APNU+AFC was in office. At that time, the Bank of Guyana said there should be no shortages.

Rumors were rife as to what were the causes for the unavailability of foreign currency. It was even rumored that the Trinidadians were coming to Guyana and buying up foreign currency using the Trinidad dollars. But there was little evidence of an unusual amount of Trinidadian dollars in the system. What may have been happening is that some unscrupulous local businessmen may have been using Guyana dollars to buy foreign currency and then export this to Trinidad were there was a great demand and a high price.

In order to control the situation and avoid high spreads, the government imposed a maximum $3 spread between the buying rates and selling rates of foreign currency. This limited the amount of money which the cambios and commercial banks could demand – they could not sell for more than $3 the price which they bought foreign currency. This was sensible move which unfortunately, the PPPC government dismantled when it came into office.

We do not know is the cause of the present shortage of foreign exchange. It could be capital flight. It could be large remittances overseas. It could also be a case in which some persons are holding on to foreign exchange in the hope of pushing the price upwards, thus reversing the appreciation of the Guyana dollar relative to the US dollar.

Whatever the present cause requires investigation not excuses. The matter should be investigated. The necessary data should be examined to determine whether there is a shortage. This should be done by an independent panel that should provide a report on their findings.

The worst things which can happen now is for the Guyana currency to suffer a depreciation. This may put a lot of Guyana dollars into the hands of some persons. But it will create severe hardships for consumers who, already saddled with high prices for imported goods, will see another wave of increases.  In the meantime, the government should immediately issue about US$200M into the commercial banks with instructions that it be only used to support the importation of goods into the country. (The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• cambios, foreign exchange, Guyana, Natural Resource Fund, Peeping Tom, PPPC

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