Does Jamaica have enough USD in reserve, in case of an emergency?

So the Bank of Jamaica has pumped almost three-quarters of a billion US dollars into the forex market so far this year to keep the Jamaican dollar stable. That’s almost 7% of total market trading volume. 

When there’s a great demand for US dollars but the supply from financial institutions is low, it drives up the cost of US dollars, making them more expensive. That in turn impacts everything we do in Jamaica.

So the BOJ has been supplying US dollars to the market to keep prices steady. Those US dollars come from our Net International Reserves (NIR), which is the country’s stash of USD.  

The NIR is there as a financial buffer to maintain economic stability.  This includes managing the country’s exchange rate, meeting its foreign debt obligations, and ensuring that it can pay for essential imports.  That’s why the NIR is often measured in “weeks of imports”.

These reserves act as a safety net, especially in times of economic stress or external shocks.  Think hurricanes, Covid, etc.

Now because the BOJ has been using so much of the reserves to defend the JMD, there’s been some concern about the NIR.  Would we have enough if the country experiences a shock.  This is hurricane season after all.  But Senior Trader at JMMB, Andre Reid, explained that the NIR is doing well.

“The NIR is actually at the second month of over $6 billion, I think that’s what 30 something weeks of of of imports. I believe that they they will always continue to look to protect the NIR,” Reid said.

“I know one of the things the BOJ has done, as well to help support the currencies flowing to coffers is actually asking authorised dealers, meaning banks, building societies and cambios to actually sell a percentage of their purchases to the BOJ on a weekly or even daily basis,” he added.

So, even though the BOJ has been using the NIR to intervene in the market, the NIR are still being constantly replenished.

And that’s good news because, despite the IMF’s recommendation that the BOJ “scale back” on its foreign exchange interventions, that’s not likely to happen.

Remember that despite the BOJ throwing more USD out there, the JMD still crossed the J$161 to US$1 mark this summer. So imagine where it would be without those interventions. 

Looking ahead, Reid said he expects the exchange rate to stay in the 160s range for the rest of the year, with the BOJ ready to step in if needed. 

And that’s the bottom line.