Dollar vs Leones and the Auction Policy My Take.
By Ansumana George
Firstly, we have to understand why certain policies are implemented at some point. Economics and Finance policies are implemented not based on opinion but based on data and prevailing market conditions at a time. We saw at the tail end of the redenomination circle the dollar started to increase geometrically, so the BSL has to extend the time again to avoid rush in the market, and today we have seen the foreign exchange policy issued by BSL which is geared towards neutralizing the exchange rate to protect our national/local currency.
This is what we should be asking, do we print dollar in SL? do we have enough investments in key sectors like mining, fisheries, manufacturing etc to strengthening our dollar reserves and give us satisfactory current account balance so that we will not struggle in situations like this, if the answer is no then why blame the Bank Governor?
Foreign exchange rate is influenced by key factors but let me put more weight on Current Account Deficit, this happens when we spend more on imports and gain less from exports, and borrow from foreign sources to close deficit gap… this is eminent in our case, we saw when the Finance Minister at some point announced how much govt has lost in paying public debt, it doesn’t matter who incurred it or not but as long as you owe debt you must pay.
Have we asked why the increase in dollar price?
There is increase because the demand as of now is higher than its supply looking at the businesses that need dollar to buy goods or pay for services.. it is so because, the amount of USD in circulation is small but the BSL has encouraging sum of dollar in reserves so, is it wrong for BSL to circulate the dollar in the market now that we have shortage technical no, or just like when you are hungry without food is it bad for your brother to give you food to eat? It is again similar when we had the fuel crises and a lot were saying govt should subside, this is the similar case.. BSL is releasing (subsidizing) the dollar to limit the big gap between the demand for the dollar and its supply. There is no better time to introduce this policy than now.. looking at prevailing market conditions.
Let’s don’t forget the fact that our market is free ( capitalist) were private sector controls the economy so it is the responsibility of govt in this case through the BSL to implement socialist policy to avoid misuse of market privileges.
I must state this, until we have enough investments in country to boost our export and maintain our forex reserves government will just try its best to at least minimize the effects as it is happening now. Without enough in country investments, we will continue to dress the same masquerade with a new cloth. That is why we should not disrupt the peace of our own very country to allow investments.
Government will do its best but investors don’t care all they care about is the safety of their investment capital which is their goal, so our responsibility as citizens, is to be honest to those foreign investors when they come and ensure that peace and tranquillity prevail as we continue to urge government to deliver by asking the hard questions based on their promises.
Note: Again, any monetary policy that America takes will affect African countries.. we are not printing the dollar so shortage is eminent…if the USA does not print enough dollar or having challenges in the world market it will affect us. Checking other countries, we will come to conclusion that there is an exchange rate crisis in majority African states.
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