A Jamaican friend who runs an investment business and I were discussing the foreign exchange (FX) market and the Jamaican dollar exchange rate, yesterday. I will not go into the abstruse points we touched on. I will distill things into what the FX market is about, in fact what any market is about-buyers and sellers (not permanent states, though some are more significant than others); gainers and losers (not permanent states, though some are more significant than others). I’ll offer a smidgen of context that’s not yet clear, as odd things happen during the pandemic, but the essential story is not affected.
Jamaicans buy lots of imported things-the weaker Jamaican dollar can hurt them (consumers and producers and retailers), if its effect is passed on into prices. Their voices tend to be loud and more often heard. The impression given is that the country is suffering when the rate goes to, say, J$154:US$1, as it did this week.
Jamaicans receive large amounts of remittances from overseas-the weaker Jamaican dollar can help them as they get more J$ for every US$ or UK£ they receive. They often are not heard complaining or their views sought when the rate goes to, say, J$154:US$1, as it did this week.
The reality we know and must see is that many Jamaicans are surviving better because of the weaker J$. Why? Because ‘weakness’ is the lot of those who don’t have FX assets or inflows. Those with such assets are smiling and happy that they are protected from the FX movement and may actually be gaining purchasing/spending power.
Now, I don’t expect those who are gainers to get up and start beating their chests, but have a look around. If you wonder why the Jamaican economy has not gone into a deep spiral downward because of the pandemic, especially its impact on local tourism, with far fewer foreigners coming to this lovely island and spending their money on fares, and hotels, and trips, and trinkets, and food, etc. Sure, economic indicators show negative growth and tendencies, but not as bad as some expected. Why? Because Jamaicans abroad have been sending to friends and family here huge gobbets of US$ and UK£.
According to a report from the Bank of Jamaica (BOJ), the amount of total remittances for the period from January 1 to December 31, 2020, was US$2.91 billion. This represented an increase of 20 percent over the same period in 2019, which totalled US$2.47 billion. Over 2/3 of these inflows came from the USA. (In December of 2020, net remittances totalled US$282.4 million, an increase of US$79.9 million, or 39.5 percent, over the total amount in December 2019. The BOJ attributed that increase to a rise in gross remittance inflows of 35.3 percent (US$78.7 million) helped by a reduction of 6.2 percent (US$1.2 million) in outflows. The rise in gross remittance inflows stemmed from an improvement measuring 42.7 percent in inflows through remittance companies and a rise in other remittances of 0.7 percent for December 2020.)
Those remittances almost offset what was lost from tourism.
So, next time you hear the catawauling about the exchange rate remember it’s those who’re suffering who making noise. Those who are gaining, are kicking back and eating oxtail and curry gravy. 🙂