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Jamaican dollar (JMD) performance blamed on US Fed policy


Much of the blame for the depreciation of the Jamaican dollar can be laid squarely at the door of the United States, thanks to the knock-on effect from a decision taken back in May by Ben Bernanke, chairman of the US Federal Reserve, according to a UK-based financial expert.

That decision cased a "mini-earthquake" which has negatively affected the economies of many emerging countries around the world, and Jamaica is just one of them.

"When Bernanke mentioned back in May that he would slow down quantitative easing and inject less money into the US banking system, we have witnessed a mini-earthquake in world financial markets, especially the emerging economies, being hit badly with their currencies and stock markets declining sharply," said Ismail Erturk, senior lecturer in banking at the Manchester Business School.


"The US Federal Reserve's quantitative easing policy has been harmful for the world financial markets," Erturk told Sunday Business.

Erturk said India, Indonesia, South Africa and Turkey were hit most badly by the Fed policy.

"So it is not a coincidence that the Jamaican currency suffers too," he said.

Erturk has lectured in Kingston over several years as part of the Manchester Business School's former long-distance programme here.

The Jamaican dollar has been under increased pressure and has been declining steadily from J$93 at the top of the year to J$104.66 on Friday, October 11, a decline of 12.6 per cent.

Tracking with the advent of the Fed policy, the JMD fell 5.2 per cent since May 1, which is a better performance compared to some large emerging economies.

The South African rand depreciated by 9.1 per cent against the US dollar between May 1 and October 10 at ZAR9.03.

The Turkish lira hit record lows against the US dollar this year, and depreciated by just over 10 per cent to TRY1.98 at October 10.

The Indian rupee depreciated by even more at 14.6 per cent over the same period, from INR53.66 on May 1 to INR61.49 on October 10. About 20 years ago, the Jamaican and Indian currencies were on par.

Worst hit is the Indonesian rupiah, which has fallen to IDR11,528 at October 10 - a decline of 18.5 per cent.

Ismail noted that an economy like Jamaica that imports heavily will see increased prices due to a weak currency.

But the depreciation of the currency does hold potential benefits, Erturk posits, saying: "Jamaica should turn this into an advantage to increase exports, especially tourism."

The Government needs to think long term and "start reducing reliance on imports especially food imports and make the tourism sector more competitive," he said.

"There are now big markets in India and China for tourism. Jamaica needs to develop joint ventures with those countries to boost its higher-end tourism market," Erturk said.

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The US Federal Reserve's quantitative easing policy has been harmful for the world financial markets

- Erturk