December 31, 2021 | Hopeton O’Connor-Dennie |
The Andrew Michael Holness led Jamaica Labour Party (JLP) government has embarked on a policy to make the Central Bank (Bank of Jamaica) (BOJ) independent.
Dr. Wayne Robinson, deputy president of the BOJ has attempted to explain the rationale for the move to make the Central Bank an independent body. He said inter alia:
“Independence means that the government has no direct control over the monetary policy of the central bank. For example inflation, money supply to name a few. In the past the government had the power to print money should there be a shortage of cash in the society.”
So declared the deputy governor of BOJ Dr. Wayne Robinson as he spoke to the media.
The government used to set interest rates that the bank of Jamaica sets on say deposits placed as reserves requirements say overnight.
Should there be a lot of cash chasing less goods this will lead to inflation. Inflation means you need more cash to buy or pay for the same goods and services. Lack of local production means more foreign exchange has to be found to fund imported goods and this means more local currency is needed to buy say United States dollars. The basic thinking is well known that is “demand and supply”. Demand is high so the price of say the US or Canadian dollar goes up.
When we export we get foreign currency aka hard currency. When we get less from our exports due to low exports, then we have to buy such foreign exchange from the local market.
The President of the Central Bank is not directed by the Finance Minister or the government but reports periodically by law to Parliament.
There has been the legendary situation where it was observed that successive governments have been known to print money to balance the budget, should there be a shortfall. For example: There have been the celebrated case when Dr. Omar Davies, then Finance Minister with the then PNP government who was in power at the time. There was an election in the air and the Finance Minister decided to “run with it”. This means allowing expenses to runaway due to the fact that there was no control over what government could do. They could do as they pleased then, as it relates to the supply of money and related policies. The government’s power has been curtailed now that there is an independent Central Bank which is not under the control of politicians.
An independent Central Bank is the best practice in financial management for any country.
Hopeton O’Connor-Dennie is a poet, elegist, author and senior international journalist who writes for Vision newspaper.