Growth & Jobs | Digitalisation can strengthen the exchange rate, reduce prices

Managing director of JN Bank Curtis Martin has outlined that digitalisation can have a positive impact on Jamaica’s international competitiveness and, ultimately, the relative value of the Jamaican currency.

Referencing an encounter with a customer at his own institution to make his point, the career banker and deputy chair of the Jamaica Central Securities Depository illustrated how digitalisation promotes efficient use of time that could feed into improved productivity. The customer, he explained, had to be convinced to conduct a transaction via one of its full-service ATMs, instead of joining a line in the banking hall.

“Thankfully, she was eventually persuaded and she proceeded to use the Smart ATM with little assistance from our branch representatives. In no time, she was out the door,” he related the story.

He explained that factoring the time it took her to travel to the branch and the time she spent waiting in line up to that point, the customer, who appeared to be on her way to work, may have lost as much as two hours of her working day to conduct a transaction that could have been completed in five minutes or less online, or at the ATM.

“Compare this to someone living in North America, who may spend a few minutes to do the same business transaction using an online platform from the comfort of wherever they are. There is no time lost during travel, or time spent waiting in line, which saves both the customer and the business precious hours that can be invested in producing or innovating to yield more goods and services, and, at the same time, reducing the need for imports,” he said.

He explained that the loss in productivity can play a key role in influencing the difference in inflation between Jamaica and its international trading partners, and subsequently the exchange rate.

“Simply put, if there is not enough production taking place, there will be fewer goods available on which one can spend, which can undermine the value of the dollar, as the supply of money will be greater than the number of goods available,” he said.“Therefore, when productivity is low, the local currency is likely to be weaker.”

The Jamaican dollar has depreciated approximately 76 per cent against the US dollar over the past 10 years, based on an analysis of Bank of Jamaica data, and more than 200 per cent over the past 20 years. He said the depreciation in currency further increases the price Jamaicans pay for goods and services, as merchants often pass on the increased costs incurred due to the deterioration in the exchange rate.

He emphasised that healthy local productivity and innovation positions help the country to better withstand blows from external shocks, such as those emanating from the current Russia-Ukraine war.

“Adopting and adapting to more efficient ways of doing business is, therefore, critical not only for businesses alone, but for every citizen of a country, if the entire nation is to grow sustainably and achieve resilience. In other words, production requires participation, not just by some, but by all,” Martin underscored.

However, he acknowledged that to facilitate digitalisation, the country has to overcome its evident limitations relating to broadband Internet connectivity. Referencing the constant issues that emerged, especially in rural areas, during the COVID-19 pandemic, he said reliability has to improve and greater effort made to close the digital divide.

“The digitalisation revolution is moving much faster and, therefore, requires much more impactful actions on the part of the State,” Martin concluded. “Combined with a thrust to improve digital literacy, we must all treat this aspect of development without delay, because our next 60 years and more as a nation depend on it.”