Foreign exchange rate control already fueling higher underground rates; shortage due to several reasons; rate control possibly illegal
Just days after the Bank of Guyana began controlling foreign exchange rates at Cambios and commercial banks for the first time since 1989, concerns are being raised about the legality of that move even as forex traders on the streets are offering more than the officially prescribed rates.
Cambios on Thursday displayed that they were buying United States (US) dollars at GYD$210 and selling at GYD$213 in keeping with orders by the Central Bank. However, on America Street unlicensed foreign exchange traders are willing to buy US$100 bills at GYD$211 and sell them back at GYD$215.
Sources indicate that if buyers need large amounts of foreign exchange, they can get what they need for as much as GYD$220 from Cambios or unlicensed foreign exchange traders on the streets. “Any businessman who needs money for his business, he is going to pay the extras that the dealer wants. They are going to force the transactions to now go underground because the Cambio dealer is going to put whatever the price needs and the rest of the transaction is going to go underground,” a frustrated businessman told Demerara Waves Online News.
Last week, a well-known city Cambio had been selling US dollars up to GYD$218 to US$1.00.
Former Attorney General, Anil Nandlall charged that for the Bank of Guyana to limit the spread between the buying and selling rates is illegal because the “Dealers in Foreign Currency (Licensing) Act states that “The price at which a licensee may buy or sell any foreign currency shall be determined by the licensee and shall be displayed at a prominent place on the licensed premises.”
“To my mind, Section 9 is quite clear in its language and spirit. It harbors no room for ambiguity or equivocation. It is the licensee and no one else who shall determine the selling price of foreign currency sold by that licensee. The Central Bank can lawfully play no part in fixing or influencing those prices.
“In the circumstances, it is my considered view that the guidelines issued by the Central Bank in so far as they seek to influence the price at which foreign currency is sold by a licensee, is ultra vires, the Dealers in Foreign Currency (Licensing) Act, Chapter 87:01, and unlawful,” Nandlall said.
Banking industry and business sources told Demerara Waves Online News that foreign exchange is available over the counter at commercial banks, but the major restriction is the wire transfer of funds to pay for supplies, services rendered and repatriation of franchise royalties
Unlike up to September 2015 when making large overseas payments through commercial banks was easy, business owners are complaining that commercial banks say they must now join a virtual line to obtain foreign currency.
FLASH BACK: Finance Minister, Winston Jordan and Governor of the Bank of Guyana, Dr. Gobind Ganga speaking on the balcony of Parliament Building.
Financial sector analysts told Demerara Waves Online News that the major reasons for the foreign exchange shortage include huge purchases by neighbouring countries that are facing acute foreign exchange shortages, huge transfers by Trinidad-headquartered companies that are operating here, reduced earnings from major exports like rice and sugar, increased debit and credit card purchases, a loss of confidence in Guyana’s economy that is resulting in capital flight.
“I have no doubt that capital flight is taking place because businessmen have lost confidence in the ability of this government to run the country and it hasn’t started now; it started a year and half now. I have no doubt that people are shipping money out, people are nervous, people are losing confidence,” the well-known businessman who began trading during the 1980s and is a strong APNU+AFC coalition supporter told Demerara Waves on condition of anonymity.
The Central Bank’s order to limit trading in US dollars at GYD$210 (buying)- GYD$213 (selling) at Cambios and commercial banks is in stark contrast to assurances by Finance Minister, Winston Jordan’s assurances that the days of foreign exchange controls will not return. At that time, Jordan had also brushed off questions about whether government had been preparing to limit the rate when asked if there had been plans to peg the rate at GYD$213.75. “Pegging a rate means we have a fixed exchange rate. We do not have a fixed exchange rate; we have a market-determined liberalized rate (and ) that won’t change,” he said on January 27, 2017.
Jordan had said that the liberalized rate would not have changed even with decisive action if moral suasion had failed. “Decisive action is to make certain that all players in the market play by the rules,” he said, adding that the rate would intervene based on demand and supply.
A prominent city businessman with numerous branches across Guyana was Thursday night vehemently opposed to foreign exchange controls and instead preferred to allow market forces of supply and demand to set the new rate. “The attempts by the government to control the market are completely wrong. Allow the free market to operate,” he said.
Fearing that if the shortage worsens and he is unable to purchase supplies and service his debts in a timely manner he would have to close aspects of his business and lay off many of his workers, the businessman said the time has come for the government, private sector and banks to discuss the problem. “As the banks are able to release, we are giving them (suppliers) little drips going along. I don’t see an end in sight and I am hoping the situation doesn’t get worse because if it gets worse, layoffs are going to soon follow. You can’t sustain it; we will have to start closing locations,” said the businessman.
Earlier this year, the Bank of Guyana stopped buying Trinidad and Tobago, and Barbados dollars after market intelligence had showed that huge amounts of those currencies had been sold to Cambio and in turn large amounts of US dollars had been purchased and taken/sent to those sister Caricom countries.