US dollar decline in 2016: IDB Report

Apr 05, 2017 News

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– Central Bank insists otherwise

When Kaieteur News initially reported last year about a decline in US currency, the government

responded with outright rejection. However, the first quarter of the new year is already over and the issue of a foreign currency shortage still lingers.
While the government continues to hold on to its reservations, a report prepared by the Inter-American Development Bank (IDB) states that last year indeed marked a decline in US dollars.
The Caribbean Region Quarterly Bulletin 2017 report, which is on the IDB website, says that the Bank of Guyana (BOG) implemented a series of policy measures to restrict hard currency demand to address shortages in the domestic market. It noted that on February 2, 2017, BOG issued a cabinet certified directive to licensed currency dealers, which includes commercial banks and non-bank cambios, to limit the spread between the buying and selling rate for the US dollar to no more than $3 while instructing commercial banks to restrict credit card purchases in foreign currency to non-business purchases.
The report said that authorities claimed the measures would improve the efficiency, depth, and liquidity of the foreign exchange markets. It added, “The inflow of US dollars has declined in 2016 due to drops in non-gold export sectors, lower remittances, and less FDI (Foreign Direct Investment) compared to previous years, while demand for dollars has remained steady or possibly grown, resulting in a shortage.”
The report also stated that monetary authorities attempt to manage inflationary expectations by anchoring the exchange rate through frequent sterilization exercises.
Even though the IDB in its special report makes such an observation, Central Bank Governor, Dr. Gobind Ganga is insisting otherwise. In a brief interview with this newspaper yesterday, Dr. Ganga said that he disagreed with the information, while noting that reserves for last year, in fact, saw an increase.

The Central Bank head said that he has the figures to prove otherwise. He said that reserves at the Bank of Guyana have improved from approximately US$598M at the end of 2015 to about US$625M at the end of 2016, representing an increase of US$27M.
Furthermore, Dr. Gobind Ganga and Minister of Finance, Winston Jordan, have been adamant that there is no foreign currency shortage problem in Guyana.
Minister Jordan had said, “When you consider the holdings by commercial banks, foreign reserves have also increased in the system from approximately US$955M at the end of 2015 to US$1.042B at present.”
“Therefore, there is no shortage of foreign exchange, consequently, there is no foreign exchange crisis looming, and no need for the currency to depreciate. The Bank of Guyana will take all necessary actions to protect the currency and to protect the reserves at the Bank of Guyana.”
The Finance Minister said that there is “lots of foreign currency” in the commercial banks, but what they should be doing is stop hoarding and “sell the people” at the regular rates.
Dr. Ganga concurred with Minister Jordan that there was no reason for concern. He said that commercial banks have increased their foreign exchange holdings. The Central Bank Governor said that in 2015, they had a gross holding of US$357M, as of September 2016 it was US$388.4M.
With regard to the issue of difficulties of remitting monies, Dr. Ganga dismissed the assertion and assured that there is no problem, and confirmed that all commercial banks in Guyana have at least one corresponding international bank.
Additionally, a prominent official at Central Bank confirmed with Kaieteur News that while some banks may be saying to their customers that there is a scarcity, none have approached Central Bank for money or have since reported a problem.
The official said, “They can say what they want to say, but the bottom line is that Central Bank has to ensure foreign currency is being sold to people who are actual traders and are transacting business, and the foreign currency is for payment for goods and services.”
The financial analyst added, “The banks are saying all sorts of things. Demerara Bank has not come into us and they have enough money. Republic Bank is coming in and saying all sorts of things, yet they can’t say who the people really demanding foreign currencies are.”
Kaieteur News understands that Central Bank is currently looking into reports that some exporters are buying the foreign currency here and are selling it directly to Trinidadian companies.
The Banking official said too that the banks have close to US$400M in the system.
“With that in mind, there is a question to be asked, if there is a demand in the system, why can’t they use the money to meet the demands? But they are trying to put pressure on those people so they can say its central bank, but we have nothing to do with it,” the official said.

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