The Jamaican dollar exchange rate, a simple tale of cats crying over spilt milk-April 25, 2021

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. 🙂

Dollar, dollar, dollar…

IMF staff include some of the best-trained economists on this planet. So, I am not going to put my head in a noose and say that they don’t know what they are talking about. The latest staff report includes one of those phrases which those who are being trained to write should see in a class called ‘How to not say what you mean’: ‘To support growth, it [the IMF] called for measures to boost competitiveness, including structural reforms as well as greater exchange rate flexibility.’ When most people think about ‘flexibility’, they imagine some lithe body, writhing and being put into positions that sometimes seem to defy physics. When economists use the term, it also means movement, but not necessarily back and forth. In this case, I will call a euphemism a euphemism: flexibility means depreciation or devaluation. It takes a while, but those latter words are actually used in the report: ‘A flexible exchange rate regime should play a central role in Jamaica’s macroeconomic policy framework and its structural agenda going forward. The recent nominal exchange rate depreciation has been useful, by reversing part of the overvaluation of the real exchange rate that has emerged in recent years, thus supporting price competitiveness…’ Now, that we understand what the ‘medicine’ is…

Just as I arrived back in Jamaica, after 50 plus years abroad, I witnessed a new milestone for its currency: it touched a low point against the US dollar of 100. There were no cheers on the street. Thankfully, my arrival was low-key and no one has put together my arrival and this milestone and made cause and effect.

Countries, rightly, feel a sense of pride in the international value of their currency. However, in trying to hold onto a particular value when pressures are building for it to be ‘flexible’ (and I do mean in either direction), resistance may be useless and can be downright dangerous to the health of politicians and central bank governors. I remember one of the famous occasions in UK economic history, when in 1967 the British Pound was devalued from US$2.40 to $2.80: the then Prime Minister, Harold Wilson (a pretty decent economist and Oxford don), famously said “It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” (It’s worth listening to the broadcast as a lesson in how a politician may try to tell a population some bitter news.) The British gnashed their teeth. Stiff upper lips quivered. Chips fell where they would (but not out of bags of fish :-)) Now, some 45 years later, Britain has not become annexed to the US, but the pound is worth about US$1.50–much stronger than in Harold’s day. Unfortunately, Britain paid a heavy price of higher inflation along the way, and the pounds in the pocket of most people are now worth much less, and weigh very heavily when you’re standing at the bar waiting to order a pint.

j$Jamaican cartoonists are very good at vivid imagery and the falling Jamaican dollar has not been spared their taunting. I’m not one who believes that the planned depreciation will have a major impact on Jamaica’s root problems of low productivity growth and competitiveness. Those things need to improve but that needs to come from people having a different mindset. Granted, the experience of having the value of their money being worth much less may give them pause for thought. Overall, I don’t believe that Jamaicans don’t want to do better for themselves and their country. My experiences this past week gave me an insight into what is good and not so good about some parts of the economy.

  • I needed a cell phone repaired. On Thursday afternoon, I took it to a store in New Kingston that sells and repairs phones. I’d bought a phone case from them and thought they were very attentive, whatever the situation. The young lady (early 20s) there told me the cost of repair and how long it would take. She also told me that I could trade-in the phone and get another one, paying a difference in price, if needed. I did the sums of cost of repair (and no certainty the damaged phone would work) against cost of new phone (with 30 day guarantee). I went for the trade-in. She gave the damaged phone to a technician to evaluate and meanwhile contacted their warehouse to get the new phone delivered. She told me the process would be about an hour. I waited, hoping that things would move faster. In the meantime, people came in and asked for things, and I noticed how the lady answered crisply and courteously to every question, including “We deal with everything but Blackberry; for that you need to go next door.” She spent about five minutes on the phone with a customer who was apparently not able to get the phone she wanted for her daughter: “It’s the shippers, Miss. We rely on them and if they don’t deliver the product, it’s we and you who suffer.” My kid was at swim practice, so after waiting a while, I left to pick her up. When I got back, the new phone was there, but the lady’s face signalled a problem: “The case is cracked. It must have been damaged in shipping. I don’t want to sell it to you and compromise our business.” We then spent half an hour trying to decide what phone in the shop would be an acceptable substitute. It was now well past 6pm, when the store should have been closed. Eventually, with the help of my 9 year-old, we decided on a new phone and wrapped up the deal. It was now 6:30, and we were late for dinner. I noticed that some other customers were in the store and still dealing with their problems–all happy to spend a bit more time given the prospect that things would work out. On Friday afternoon, just as I got back from a trip to Mandeville, my phone rang; I saw the number and knew it was the lady from the phone store: “Hello, Mr. Jones. I just wanted to check how things were going with the phone and if everything was alright.” We chatted for a few minutes. I was impressed: it was service that went a little further than expected or really needed and it made me (the customer) feel good.
  • On Saturday, I needed to round off the repair by having the SIM card replaced by the phone company: the new phone needed a different size SIM. I took the phone to a LIME store in Half Way Tree, where I was told initially that the change would be a “24 hour process”. Then the representative realised that the account was not in my name, but was for an organization, so I couldn’t make the change there but would have to go to the ‘main office’, which was just a few minutes down the road. Off I went. “Well, to make this change, Mr. Jones, you’ll need a letter from the organization…” I frowned 😦 We talked a little and after a few sentences, and I was asked for some ID. I gave two documents. Moments later, computer keyboards were being tapped, forms were being completed, new SIM card was being processed, phone was in full working order. The man gave me an invoice that showed ‘J$0’, and told me that the normal J$300 fee did not apply. Happy camper.
  • My mother-in-law is visiting from The Bahamas. She’s flabbergasted that the Jamaican currency “gawn don so”. “How can The Bahamian dollar be worth one US and the Jamaican is 100?” she’d asked me when arriving a week ago. She’d studied here in the mid-1980s and remembered better days for the J$. I gave a quick Econ 101 lesson about fixed and floating exchange rates. “I don’t know. It’s a crying shame,” she said after my attempted explanation. She bought green coconuts in Mandeville (for J$125 each) and wanted them chopped to get at the meat so that she could make a coconut cake. “We need a cutliss!” she told me on Saturday morning. She knew I didn’t have one and we’d joked during the car ride that I shouldn’t think bad of my father for never having bought me one earlier in my life :-). I went to a fancy-looking ‘hardware’ store near Manor Park: they really only sell interior fixtures and tiles, but the man there told me to go to a real hardware store just down the road. I asked him where I could get a gas for our grill. He was perplexed that I had asked for ‘a bottle’, and after some head scratching realised I needed ‘a canister’. He suggested the gas station across the road; no joy, as I’d tried there already. He asked a colleague, then another; no joy. He called a friend; no joy, but he got a name and number. He called and spoke for a while, then passed the phone to me. The lady asked where I lived and when I needed the canister, then said she’d call me back. I headed off to get my cutlass. My phone rang as I entered the store. “We have our supplies in Rockfort and Portmore…” I explained that these places were a long way away and I was not going to drive to either today. She told me they would deliver. Good. She told me to call a number and ask for ‘Ramon’. I called; no answer. Voice mail. I left a message. I called again a few hours later; no answer; voice mail, again. Ramon has not called me back. It’s Saturday, maybe he went to the beach. It looks like the grill will not be firing today, but we will have coconut cake.
  • While in the hardware store, I noticed that they had a sign stating ‘Dear customers, we accept US dollars as payment for goods, at an exchange rate of $96.00’. I paid in local currency.

I don’t see where depreciating the exchange rate is going to help make these kind of experiences better (in the cases where something needs changing). The ‘good’ in these stories are things which I would like in most dealings; the ‘bad’ are not terrible (but I have a few of those already and will ‘deal wi dem layta’). Maybe foreign enterprises will see the Jamaican worker as truly superior and want to employ them and invest more here.

My cell phone was certainly much more expensive to buy than it would have been otherwise. My cutlass, too, though it was considerably cheaper–I could have bought 100 for the price of the phone and could have started my own bushing business. I need to see if sales of cell phones get hit by the depreciation: Jamaicans love their phones. Maybe, next time, I buy a cheapie cell phone, like I did for my father-in-law, when we passed a LIME roadside promotion in Mandeville, for the princely sum of J$1250 (including SIM and J$100 credit).

My jelly coconuts don’t seem to have gone up in price much, and drinking one of those on Friday was a good lunch. The J$300 I paid the roadside vendor for my sugarloaf pineapple seems to be money well spent judging by the absence of it in the fruit bowl 🙂 The falling J$ hasn’t affected much the price of local produce and may hopefully keep us away from all of that ‘inferior’ foreign stuff.

It’s hard to measure productivity in services, but ‘quality’ and ‘efficiency’ have to be there. Willingness to give good service is not always evident in any country–believe me when I say that it’s hard to imagine more service dysfunction than I’ve experienced in the USA. In tourism, can I see a real difference between what The Bahamas offers me at a top-end hotel such as Atlantis versus what I got in Jamaica at the Hilton in Montego Bay? Is my wife ready to back me up on this when we complete the survey about Atlantis? Good service–and often with a laugh and a joke and a nice word, not some sourpuss or phony ‘Is everything ok with your meal’-ism, quickly followed by scowls if the tip is less than 15%–is not a dead art in Jamaica, by any stretch, so for the moment. On that score, I will say I have high hopes. But, how is the exchange rate ‘flexibility’ really going to price Jamaica into a better competitive position world-wide? The question is not rhetorical.

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