Before the Central Bank commits to releasing some of Guyana’s foreign currency reserve into the market, it is asking commercial banks to help “weed out” illegitimate requests even as it considers closing foreign currency retention accounts of businesses it claims are “hoarding.”
These statements were shared by Minister of Finance Winston Jordan and Bank of Guyana Governor Gobind Ganga at a press conference yesterday. The press conference followed a meeting with the Guyana Association of Bankers (GAB)—the first in a series of stakeholder consultations aimed at addressing concerns about Guyana’s rising foreign exchange rate. The next meeting is scheduled for Thursday and will include representatives from the Central Bank and GAB.
For weeks, the Guyana dollar has been under pressure and the business community and members of the public have complained about having to settle transactions at a rate of $230 to US$1 and higher. Both the government and the Central Bank have played down these concerns.
Jordan explained yesterday that the objective of Thursday’s meeting is to agree on a number of issues, including how Central Bank can help the commercial banks to get over the hump of January and February, which are always tough months for foreign exchange. In exchange, the commercial banks would be expected to “weed out” illegitimate requests for foreign currency.
“We want to ensure that there is a legitimate need because, as you know, there is going to be excessive demand from all sources,” he said.
Jordan explained that if a legitimate need is established after the meeting with commercial banks, Central Bank will release currency from the reserve. He also stated that the commercial banks have acknowledged that it is not in their or the country’s interest for a bidding war to continue.
The minister also contended that the exchange rate for the US dollar had remained a constant GY$210 due to the collective action of the commercial banks until a spike late last year. He explained that this spike has resolved into a continuous increase in the rate due to the competitiveness of the banks, who have been offering different buying rates. He expressed the hope that the banks could collectively trust each other to fix the rate rather than attempting to break that agreement.
“They have met before and tried to settle the rate before but since December they have been working individually and the tacit agreement that it remain $210 has suffered. We are asking for banks to trust each other so they’ll all hold one head,” Jordan said.
Asked to share what reasons have been advanced by the GAB for the rising exchange rates, Jordan reiterated that with export earnings down from most of the country’s financial sectors, the supply of foreign currency has decreased.
He noted that while gold exports continue to do well, the actual price is lower than a year ago, so the currency earned is less.
“They suggested that there are more demanders in the market and that some gold dealers are hoarding, not declaring all that they could. Some have foreign retention accounts and are not supplying the market from them,” Jordan explained, even as he acknowledged that there is “some mismatch between supply and demand at the level of certain banks.”
While he would not name the “new demanders’ within the market nor state how much is being “hoarded” in these accounts, Jordan said that government has the option to seize some retention accounts. He however stressed that this is a last resort and that the Central Bank would first attempt to convince the holders of these accounts to use their funds instead of purchasing from the market to avoid a run on the rate.
“We don’t want to use a heavy hammer to kill an ant really but what I’m saying it is a tool that is available to you. In other words, what the government has done so far is urge moral suasion but I mean there’s a limit to moral suasion at a time when the rate will deteriorate, then you have to do more than just moral suasion,” he said.
He added that a retention account is not a right, “it’s a privilege granted at the behest of the Central Bank; we have net earners of foreign exchange also trying to play the market.” Jordan’s reference to the possible seizing of retention accounts will likely cause greater anxiety in business circles, sources say.
Ganga explained to reporters that in 2016, Guyana earned US$30 million to US$40 million less than 2015 in foreign exchange from rice, sugar, bauxite and forestry. He added that during last year Central Bank had released about US$30 million into the market to satisfy foreign exchange demand but could not state how much US dollars has been put into the market so far for 2017. He noted only that there have been “frequent inputs in small amounts.”
Meanwhile, both the governor and the minister have appealed to the media to refrain from reporting “speculative” information on the exchange rate.
“The media has a responsibility, rather than to create a situation where there is this rising speculation, to inform the market correctly what is there,” Ganga said, while claiming that every time he provides information it is presented to the public as if the country is in a crisis.
“It is almost as if people want to see the country destroyed so they can crow over it,” Jordan added.