Exchange rate: Fixed or floating?

WITH THE emergence of the recent debate on the call for a fixed exchange rate versus a floating rate for the Jamaican currency, the issue needs widescale debate, and some critical decisions need to be made. It’s not time to shut down this conversation. Private Sector Organisation of Jamaica (PSOJ) President Howard Mitchell called for a fixed exchange rate regime by pegging the Jamaican currency to the US dollar.

For those who may not fully understand, up to 1971 most currencies were pegged/fixed to the US dollar and the US dollar, was fixed to the price of gold. There are two types of exchange rate regimes, fixed and floating.

The floating system

The floating rate is an unstable system that affects the dollar. A floating exchange rate is “a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate”.

The system affects the poor and the poorer countries because when the dollar devalues, it affects the prices of food, energy, housing/building materials, clothing, transport, school fees, and all the utilities. It may work for the big business, banks and the rich, but the poor get shafted. When it goes up we feel it, but if it is maintained or devalued, prices don’t go down.

In a floating rate of exchange, demand supersedes supply. This devalues the Jamaican dollar and opens the door for economically stronger nations to come in and dictate everything to the people of the nation.

Floating system is more for the young, who can take the risk to invest. The floating system has more to do with greed. Taking greed out of the system would cause us to achieve prosperity.

Benefits of the fixed regime

With a fixed exchange rate you can plan ahead and save a floating doesn’t allow for that; what if a war breaks out?

Based on biblical principle, precious metals were used as the monetary base – gold, silver and so on. In Genesis 23: 16, Abraham paid 400 shekels of silver for Sarah’s burial spot. Furthermore, there was a barter system.

Nationally, a fixed rate backed by gold and so on would better help the nation and the poor. The Bible does, however, support the floating regime for private investment. In Matthew 25: 14 – 30 and also Jeremiah 32, he used 17 shekels of silver to buy land during the famine (see also Ecclesiastes 11: 1 – 6).

Solomon started on a fixed system backed by gold, but then, things began going wrong for him. Some say it was one of Solomon’s flaws – what made him fall – greed.

Remember, too, that Jesus beat the money changers out of the church. So they were trading in the church – more likely a floating system (Mark 11: 15 – 16; Matthew 21: 12).

We may soon hear calls to get rid of our local currency.

If Jamaica employs a fixed or pegged rate of exchange it will strengthen our dollar against all the others.

Borrowing in foreign currencies will be much beneficial, once there is a specific way set up to do so.

The poor will be able to survive.

The banks will be forced to set low credits for businesses so that they will be better able to expand, no matter how small that business.

We can limit the inflation rates and unemployment rates will be reduced.

The Bible favours a fixed system, but fixed to what? So, let us say we fix it to the US dollar and the US dollar collapses, it would create global economic turmoil. Most investors would have to find other markets. Interest rates would go up and chaos would take place.

So, in God we trust! Faith in God is our currency. Eventually then, based on the market trend, the globe will go right back to a fixed regime backed by gold/gold coins, silver, oil, livestock, farming, the barter system. Nations should begin boosting export, reduce sales tax (GCT). CARICOM should come together and strengthen the EC dollar. Jamaica and those in this region should work to cut imports and start vehicle and appliance assembly plants. We have the capacity to do it.

‘Nationally, a fixed rate backed by gold and so on would better help the nation and the poor.’