File photo
Tourists making one of their regular trips up the Dunn's River FallsKlao Bell, Staff Reporter
It is common to find 'low' prices, such as $1,500 for the rental of a three-bedroom house being advertised in the classifieds, or a price tag of $19 for a pair of pants in some stores. But, bargain hunters are advised to take a second look as these figures are often preceded by a little note -'US$'.
Store owners, higglers and landlords have been quoting prices in United States dollars in a bid to protect themselves when the Jamaican dollar devalues. But the practice which has become the norm for some, continues even though the dollar is now relatively stable.
Calvin Morin, real estate broker said, "Clients ask me to seek U.S. dollar payment. They are afraid that the dollar will devalue over the year and they don't want to lose. It is a popular practice with higher priced properties, such as those ranging from around US$75,000... people are willing to pay."
The broker said some customers agree also to pay the Jamaican equivalent based on wherever the dollar is, come rent day.
One woman, who advertised a 'large three bedroom townhouse for US$2,200' in the classifieds said, "this is my way of earning US dollars. I have monthly obligations in the States that I have to meet." She was referring to her children in college in America.
This practice of using US dollars (or any other currency) instead of the Jamaican dollar as a medium of exchange in Jamaica is called currency substitution (CS). According to economists, CS is the ultimate consequence of high inflation because people prefer to replace money with a high inflation rate with more secure currency.
In Jamaica, the U.S. dollar is very appealing because of its global strength, the volume of trade with America, and its current value of J$48.39 to US$1 according to Bank of Jamaica (BOJ).
BOJ Communications Director, Jacqueline Morgan, explained that there is nothing in the Bank of Jamaica Act that outlaws these kinds of transactions but she emphasised that, "no one can be forced to pay in U.S. dollars because Jamaican dollar is the only legal tender."
Justifying the bold sign in all its stores which tells customers that they can pay for their purchases in U.S. dollars, at the above-market rate of $48 to US$1, Andrew Levy, general manager of Premier Company Ltd., which operates Popeye's Chicken and Seafood, said it's a way of protecting the business.
"Popeye's has to import goods from the USA and has to pay for them in U.S. dollars. In the past when there was a shortage of U.S. dollars we had a hard time meeting our obligations in a timely manner as they were not always available from our bankers and when they were, we had to pay top prices to the banks. So we decided that it would be better to give good rates to our customers and the response has been favourable. We do not often have to buy U.S. dollar from our bankers to pay our foreign bills," Mr. Levy explained.
Popular Kingston stores, Dollar King and Lord and Lady, display U.S. dollar prices on sale items. This, says general manager Steve Khemlani, is a way of giving a fair deal to Jamaicans who usually travel overseas to shop.
"We're trying to give a fair deal so that instead of speculating on the dollar you give the rate at today's price. Jamaicans are aware of prices through travels and the Internet, here they are able to instantly compare the cost of goods," Mr. Khemlani said.
Mr. Khemlani said a new development of his business is that tourists are also shopping there. He said the company doesn't change the rates daily, but sometimes keeps it set for three to four weeks, where it sometimes falls behind the BOJ rate.
Dr. Omri Evans, president of Fidelity Economic Financial & Marketing Services Limited said, currency substitution is a product of the shaky financial era of the 1990s. He said at that time it was also common for top-level job seekers to quote their salary requests in U.S. dollars.
"This is why sound monetary policy is important so that our dollar can be more competitive in retaining its value against stronger foreign currency," Dr. Evans said, adding that, "the Jamaican dollar is now fully backed and more secure, it is just a matter of keeping it that way."
