Jordan blames ‘contrived’ reporting for foreign currency panic
Minister of Finance Winston Jordan has labelled recent reporting of a shortage of foreign currency “contrived,” while blaming it for creating “a climate of speculation and hysteria.”
Speaking at the opening of the new Citizen’s Bank Headquarters on Camp Street on Friday, Jordan explained that the foreign exchange market in Guyana functions in a liberalised environment, with free trading or intermediation of foreign currency in the market.
He, however, noted that media reports about a shortage of foreign currency have led to several developments which have artificially stressed the foreign exchange market and have the potential of destabilising Guyana’s fragile economy, which he said is finally recovering from the post-general elections stress of 2015.
Since last month, the Kaieteur News has published a series of reports about local businesspersons being told by banks that there is a foreign currency shortage here.
Both Jordan and Bank of Guyana Governor Dr Gobind Ganga previously dismissed the reports.
On Thursday, the Georgetown Chamber of Commerce and Industry (GCCI) said its Executive Management Committee (EMC) had met with senior representatives of the Bank of Guyana to discuss concerns raised by some of its members regarding difficulties with local banks processing overseas transactions.
“During the meeting, both parties shared their views on the matter, especially as it relates to conflicting reports that were seen in the media. The Bank of Guyana assured the Chamber that there is no shortage of foreign currency and produced evidence which suggests that the foreign reserves of the commercial banks and the central bank remain relatively unchanged,” the GCCI said in a brief statement.
It added that the Bank of Guyana stated that information being circulated by the media is “destabilising speculation” which can impact demand, but added that it is monitoring the situation and will intervene if necessary.
“Based on discussions with the Bank of Guyana, the Chamber recommends that businesses consider the option of looking to other banks and cambios for foreign currency. Any difficulties faced when processing financial transactions can be reported to GCCI or the Bank of Guyana directly,” the GCCI added.
During his speech on Friday, Jordan noted that the main intermediaries in the foreign exchange market are six banks, 13 nonbank cambios and the Bank of Guyana. “Exporters, importers and other participants in the foreign exchange market conduct business with the commercial bank or cambio of their choice. The structure, conduct and performance of the foreign exchange market have provided for a relatively stable rate of the Guyana dollar,” he added before criticising recent reporting, which he said has created “a climate of speculation and hysteria” that has been cultivated by some market participants, and led to unwelcomed developments.
These developments, he said, include major companies seeking to pay for imports and repatriate profits earlier than required in the usual business cycle, which has created a surge in demand for foreign currency, thereby clogging the market.
On the supply side, the minister explained that some exporters are withholding sales of foreign currency to the system, “possibly in the hope of provoking a depreciation of the domestic currency so as to maximise their Guyana dollar profits.”
Additionally, he said the situation has been aggravated by “the action of some net foreign exchange earners, who are demanding foreign currency from the market while hoarding their foreign currency holdings.”
“Some companies are even purchasing foreign exchange to facilitate trade for their counterparts outside of Guyana, while a few exporters and importers are conducting foreign exchange transactions bilaterally, outside of the foreign exchange market,” the minister said before adding that “large spreads between the buying and selling rates for foreign currency, especially by bigger banks, have led to some level of disintermediation.”
These banks, he explained, act as the pacesetters in the pricing of foreign currency and interest rates and have great influence in creating uneven competition for smaller banks.
Cumulatively, these developments have artificially stressed the foreign exchange market and have the potential of destabilising Guyana’s fragile economy, he warned.
Jordan also maintained that the level of foreign exchange in the system indicates that current demand can be adequately met without speculation. “In spite of the fall-off in export earnings of sugar, rice and timber, the foreign exchange reserves of the Bank of Guyana have increased to US$616 million, at December 31, 2016, from US$598 million, at the end of 2015. Commercial banks’ foreign reserves totaled US$315 million, at the end of 2016,
roughly the same level as in 2015,” Jordan said. “Last year, the Bank of Guyana sold approximately US$30 million to commercial banks to smooth out spikes during seasonal demand. Indeed, for the period November - December 2016, the Central Bank sold some US$12 million to the bank cambios to ensure adequate flows of foreign exchange to the market,” he added.
Jordan said while the Bank of Guyana will continue its interventions in the market as warranted in recent times, due to the increased speculation in foreign exchange market activities, commercial bank cambios have been charged with undertaking the necessary due diligence to ensure orderly market behavior.
He acknowledged the positive impact this due diligence has had on the market, while calling on other main stakeholders such as non-bank cambios, exporters and importers to be responsible and ensure their conduct does not have a negative impact on the foreign exchange market and the macro economy.
“In a market with limited players, in which one or two are dominant, it is incumbent on all to act responsibly, to play by the rules, so as to avoid disintermediation and interruption of orderly flows of foreign exchange. We will continue to use moral suasion to return the market to stability. But the Government stands ready to act decisively, if our current entreaties fail,” he said.