Uninformed forex rate pronouncements harmful

Michael Witter, GUEST COLUMNIST

I note with deep concern a Gleaner online story on Tuesday citing a financial analyst's lack of surprise and an economist's expectations that the Jamaican dollar will lose value in the next few months.

While both of these individuals are often cited by the media on all kinds of issues dealing with the economy, neither of them have any record of research on foreign-exchange movements on which to base their sentiments, as far as I am aware.

It may be that there is a source for their views other than research, in which case, it should be clearly stated what that source is.

Their professional designations and frequent appearance in the media might give some members of the public the impression that their views are based on technical and scientific research.

We have lived through episodes in the past where uninformed persons triggered expectations of currency depreciations that led to people seeking to protect themselves by buying and hoarding foreign currency.

The inevitable result of that kind of speculative action is that the Jamaican dollar loses value against the US dollar. Simply put, the prediction of a depreciation of the currency becomes a self-fulfilling prophecy.

Some of the persons who triggered speculative buying and selling in the past likewise had no scientific basis for their 'lack of surprise', 'expectations', or even 'predictions'. Indeed, some of these experts were pure creations of the media, with little or no training in economics or finance, and at best an anecdotal understanding of the structure and functioning of the Jamaican economy.

Having contributed to the instability of the currency, and by extension the economy, some have migrated, no doubt with the gains from their own self-fulfilling predictions.

The media must take some responsibility in this regard, as well as others. It should never encourage discussion of the value of the currency that appears to be based on scientific research but which really originates in personal hunches, or otherwise, without saying so.

People will respond differently to someone saying they had a dream about a depreciation of the currency, than to one who appears to be talking on the basis of expertise in economics and finance.

I urge you to review the experience in the past when our currency depreciated unnecessarily as a result of misinformation that triggered the well-known herding principle in markets.

We have enough problems of mobilising resources for gainful employment and profitable production without spooking speculative motives.

Michael Witter is a senior research fellow at SALISES, University of the West Indies, Mona.