BOJ awaiting feedback from banks on forward contracts for fx purchases

The Bank of Jamaica (BOJ) is awaiting feedback from financial institutions on the issue of engaging in forward contracts for foreign currency purchases. 

BOJ Governor Richard Byles said this is being considered as a means to better regulate the availability of foreign currency to the market, in a bid to prevent recurrences of recent heightened demand for the US dollar that spurred a depreciation in the value of the Jamaican dollar, which fell by 5.2 per cent (J$7.07) between October 1 and November 12.

A forward contract is an arrangement between two parties for the purchase and sale of a particular commodity at, over or within a specific future timeline.

The central bank said the spike was related to extraordinary demand for portfolio transactions, as well as for regular restocking by retailers for the Christmas season.

This resulted in the BOJ selling US$140 million to the market via the BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT) between October 18 and November 14.  

“Three or four weeks ago, I had discussions with the commercial banks, in particular, because they are the main dealers.  I asked them to look on this forward [contract arrangement], because that is the way we need to go.  I’m still awaiting their response,” the governor indicated.

He was speaking at the central bank’s quarterly briefing at the BOJ in downtown Kingston, on Thursday, November 21.

Byles said he and the more than 20 dealers attending the meeting had some “hard discussions” during which “I asked them to take a very responsible attitude to the foreign exchange market”.

“They need to take an approach that understands and appreciates that stability in the market is important,” he added.

Against this background, Byles advised that the BOJ and the Financial Services Commission (FSC) have agreed to collaborate on monitoring these transactions before they enter the market domain.

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