A brilliant book on foreign exchange by Dr. Ramesh Gampat

Dec 15, 2024 Letters

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Dear Editor,

The field of Guyana’s currency and foreign exchange has never been addressed in much detail (book form) even though foreign currency market and management are becoming increasingly important for a developing country like Guyana, which is becoming even more integrated into the global economy. Even more startlingly, the concept of FX and why there is a foreign currency shortage, if there is indeed one, is poorly understood by the Guyanese general public.

Dr Ramesh Gampat, an illustrious Guyanese economist who once worked for the UN, addresses this critically important issue. He makes it easy to understand by brilliantly penning a book on the subject, explaining the whole issue pertaining to Guyana currency and how it is managed. In the process, he helps readers to understand exchange rate fluctuation and its impact on the economy.

The Guyanese FX Market Modern Discourses and Controversies (FX = foreign exchange) (Oct 2024) addresses issues relating to the FX market, international reserves, exchange rate fluctuation, net foreign balances of commercial banks, whether the Guyana dollar is overvalued or not, the various exchange rates, whether official cambios are effective, among other related banking issues.  As a bonus, Chapter 2 is a detailed review of central government expenditure, fiscal deficit, public debt (domestic and external). The focus is on the sale of foreign exchange to the local market by both bank and non-bank cambios during the period 2013 to the second quarter of 2023.

Gampat offers readers an understanding of various concepts related to exchange rate (using the Guyana dollar as reference). Outlining the salient institutional characteristics of foreign exchange in Guyana, it provides a wide-ranging explanation of the behaviour of exchange rate of the Guyana dollar with the US dollar. It makes for excellent reading, and the level of exposition is nontechnical and as such intelligible to most readers regardless of background. It explains economics concepts with clarity and is aimed at a general readership. Scholars, students, policymakers, ordinary folks interested in understanding exchange rate and current economic performance in Guyana will benefit from Gampat’s insightful and lucid analysis.

Gampat lays out the origin for motivation for the book in the very first paragraph. He notes in the opening sentence that the book arises out of a comment in Stabroek News in response to a query on whether the Guyana dollar is over or under valued and whether the country should ‘dollarize’ (meaning getting rid of the Guyana dollar and the bank of Guyana, and therefore use the American dollar).  Dollarization is an argument made in SN and other media houses by some commentators. Gampat explains that international reserves, as the term suggests are not held to pay for imports on a regular basis.  Instead, the principal purpose of international reserves is to mitigate damage to the domestic economy if all sources of external inflows dry up.  Based on his analysis, he also debunks comments made by VP Jagdeo on foreign currency and one Joel Bhagwandin, a frequent letter writer in the mass media. Exchange rates are vital to the functioning of all economies as it impacts consumption, trade, inflation, growth, and overall development. And comments in the media say there is a shortage although the Central Bank and the government say there is no shortage.

Guyana has an excessively weak dollar that trades at over two hundred to an American dollar. Guyana was known to import more than it exported after independence (1966) until recently with the production of oil beginning in 2019. The exchange rate of the G$1 has slid from around $1.60 in 1966 to over two hundred today to the US dollar. So, what determines the rate at which to purchase other currencies? In a free market, Gampat says, “it is the market” or supply and demand that determines the price of a currency. In Guyana, the American dollar (greenback) is preferred although the British pound, Canadian dollar, and East Caribbean dollar are also regularly exchanged in Guyana. But the two most important currencies used to trade are the US dollar and the Trinidadian dollar.

The book is divided into twelve chapters with each discussing economics concepts (related to foreign exchange) with many charts and tables. Gampat has not shied away from political economy, and he notes that Guyana’s politics is very toxic. The very first chapter is titled “Politicization of Truth”. The arguments in the book are well documented with countless citations and references and hardly any flaws. The book presents excellent research on exchange rate and related concepts. Gampat uses theoretical concepts and empirical information to substantiate his claim.

The book is hailed by Guyanese economist Dr. Collin Constantine Girton of University of Cambridge who writes: “Dr Ramesh Gampat stands out as the first analyst to consolidate recent statistics on Guyana’s burgeoning oil economy. This book is essential reading for anyone engaged in public debate and policy regarding the dynamics of the local foreign exchange market, fiscal and public debt policies, and exchange rate management. Students and general readers will appreciate the accessible introduction to Exchange Rate Theory and the thorough examination of the local FX market, covering cambios as well as the inter-bank FX market”.

This is an excellent book and the analysis compelling. It is an essential read in the field of exchange market and related financial matters and economics, and as Prof Constantine puts it, “for anyone interested in the intricacies of Guyana’s evolving economy and its impact on the foreign exchange market”.

The final Chapter (12) is an excellent summary of the major findings of the book. Towards the end, Gampat writes: “If there is a single major take-away from the discussion in this book, it is that there was an excess demand for foreign exchange, mainly the USD, in 2021, 2022 and 4 of the 6 months in the first half of 2023. The shortage was caused or aggravated by two factors [Imports larger than exports by the non-oil economy, and the Bank of Guyana which prioritizes reserve targets, which removes FX from the market]. Both of these factors “will continue to operate for the next few years or so,” according to the author (p. 349).

Finally, Gampat writes, “The merchandise trade deficit of the non-oil economy and the monopolization of oil revenue by oil companies are major causes of the FX shortage plaguing the non-oil economy. The implication is dire: the shortage is likely to continue for years into the future and little redress can be expected from oil revenues” (p. 351).

(Book is published by Xlibris, 404 pp and can be obtained from Amazon!

Sincerely,

Dr. Vishnu Bisram

(A brilliant book on foreign exchange by Dr. Ramesh Gampat)

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• critically important issue, Discourses and Controversies, Guyana’s currency, Guyanese general public.

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