The Georgetown Chamber of Commerce has blundered again!

Mar 03, 2023 Features / Columnists, Peeping Tom

Kaieteur News – The Georgetown Chamber of Commerce and Industry (GCCI) is at odds with the Bank of Guyana. The GCCI has expressed dissatisfaction with the Central Bank’s “lack of action, vision and modern financial policies to improve access to financing for local businesses.”

This is strong and unfortunately misplaced criticisms. While the Bank of Guyana does have a role in determining monetary and exchange rate policies, to accuse the Central Bank of a lack of vision and modern financial policies to improve access to financing for local businesses have nothing at all to do with the present situation in which businesses are finding it difficult to source foreign exchange.

From its statement, it is clear that the GCCI does not have a clue about the role of the Central Bank. As the Bank of Guyana has rightly pointed out, “The GCCI appears to be of the mistaken impression that the BoG exists to ensure that foreign currency is available to their membership at the times that they demand and at prices that they demand. This is simply not how an open market economy operates, and is simply not how foreign currency availability and pricing are determined where floating currencies are concerned.”

The purpose of the Bank of Guyana is spelt out in the Bank of Guyana Act of 1998. According to the Act, “the Bank shall be guided in all its actions by the objective of fostering domestic price stability through the promotion of stable credit and exchange conditions, as well as sound financial intermediation conducive to the growth of the economy of Guyana.”

The promotion of stable credit and exchange conditions, does not grant to the Bank of Guyana the powers to intervene as it pleases in determining the exchange rate. Guyana operates a floating exchange rate which is subject to market forces and market conditions – demand and supply. In fact, the Bank of Guyana Act states that the Bank of Guyana shall determine the rates of exchange by reference to market rates.

But while the country’s exchange rate is supposed to be determined by market forces, this does not preclude the government from intervening in order to stabilize the exchange rate, and, as has been done in the past, to intervene to address concerns with the exchange rate. Such concerns obviously would have to address issues relating to shortages.

The rightful place for the GCCI to lobby for visionary intervention should be the Ministry of Finance. It is the Ministry which will have to see answers as to why foreign currency has suddenly difficult to obtain and to also decide what types of intervention need to be made.

In doing so, the government must not close its eyes to the possibility that the currency markets may be subject to manipulation by forces outside of the government. Nothing must be ruled out.

An analysis of the foreign currency receipts and sales as well as the repatriation of overseas earnings by exporters, including gold exporters, may be helpful in identifying the causes of the present problems. The possibility of someone cornering the markets to make a windfall profit must not be ruled out, as should capital flight.

There should be no intervention on the part of government without first there being an analysis as to the cause of the present situation.  Given the powers of the Bank of Guyana to demand information from those banks and non-bank financial entities that deal with foreign currency, it may be best placed to undertake such an analysis and to recommend policy actions to the government.

As much as the GCCI statement constituted a misguided attack on the Bank of Guyana, it is not outside of the remit of the Bank of Guyana to seek to analyze the reasons for any instability in the country’s exchange rate or indeed for that matter instability in the availability of foreign currency.

The government has intervened in past when it felt that the spread between the buying and selling rates of the US currency were too great. The APNU+AFC government had placed a $3 cap on ‘spreads’.

But the PPPC has unfortunately removed this cap and in the process may have been too liberal in loosening controls on our local foreign currency market. Having market forces determine the exchange rate does not mean the absence of regulation or that market forces must be allowed to entrap the currency market. That is something which both the GCCI and the Bank of Guyana need to understand.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

• APNU+AFC Government, Bank of Guyana, Central Bank, Georgetown Chamber of Commerce and Industry (GCCI), intervention