Making sense of the Exchange Rate Depreciation

Part 1

Guyana is not a country with rapidly adjusting or flexible financial prices, such as a main stock market index or bond yields. The closest we get to a market in which the price signals new political and economic information is the foreign exchange (FX) market. The FX market affects every aspect of economic life in Guyana. The expected rate of exchange in this market is also a reflection of the health of the economy and the state of politics.

Note, I use the term expected exchange rate because the central bank targets the actual G$/US$ rate. This means the Bank of Guyana does not allow the rate to fully adjust to expectations or sentiments that in turn influence demand and supply of foreign currencies. For a country like Guyana, and those of the Caribbean, this is a good policy stance because impulsive swings in the exchange rate can have …to continue reading this article, please subscribe.  Already a subscriber ? Sign In.

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