Bank of Jamaica explains the FX market

Bank of JAMAICA took to the streets of Twitter to give an Econ202 tutorial on the foreign exchange market, reacting in part to talk of ‘crisis’ as the J$ crested 142 to the US$. It’s a lengthy and somewhat overdue attempt to educate the wider population. The thread begins here:

Several commentators, myself included, have tried over recent years to point out that the exchange rate is not behaving in any abnormal way and has shown signs of maturity in the past two years by bouncing in a range between the 124-136 range. Some have even pointed out that the purchasing power parity (PPP) level–taking account of inflation differentials between the USA and Jamaica–of the J$ is currently 142. See Kevin O’Brien Chang’s Stop currency crisis talk! column in the Jamaica Observer, this week.

I suspect that these won’t stop cries of precipitous slide but it’ll expose the unwillingness to see things for what they are. After all, the exchange rate has been a great political football.

What the FX market needs badly are instruments to help people hedge better and lock in prices, eg using forward contracts. Why those haven’t developed yet needs an honest conversation with the central bank, financial sector and businesses. Obviously, the need is there as planning is better with reduced uncertainties.

Author: Dennis G Jones (aka 'The Grasshopper')

Retired International Monetary Fund economist. My blog is for organizing my ideas and thoughts about a range of topics. I was born in Jamaica, but spent 30 years being educated, living, and working in the UK. I lived in the USA for two decades, and worked and travelled abroad, extensively, throughout my careers and for pleasure. My views have a wide international perspective. Father of 3 girls. Also, married to an economist. :)