Delroy ChuckTHE GOVERNMENT'S decision to reject the proposal for a fixed exchange rate demonstrates, once again, the dominance and priority of politics and power over economics and good sense. The government, and its supporters, strongly believe that the discretionary power of the state are overriding and residual tools to create balance, equity, safety, good order and a strong society, when experience teaches otherwise.
The history of unchecked discretionary power has been a sordid story of abuse, corruption and tyranny. The proposal for a fixed or pegged exchange rate attempts to stymie the power of the state to create money, excessive money that fuels inflation, devaluation and high interest rates. In fact, an independent central bank with the mandate to protect the currency would have a similar effect but socialist-minded commentators are strongly against the control of state power. In his column, Sunday Gleaner, May 2nd, Ian Boyne declared: "I reject the proposal for an independent central bank because that removes the discretionary power of the state to act in the interest of the country, particularly the poor and vulnerable."
'RUN WID IT'
Well, if the state can act in the interest of the poor and vulnerable, it can also act in the interest of anything or for any purpose it deems fit? In Jamaica, the power to create money has been abused, especially at election time. Check the growth in money supply during the period 1991-93, for the 1993 General Elections, which fuelled inflation and set the stage for the huge devaluation of the currency. Again, in 1996-97, for the 1997 General Elections, money supply jumped, which finally caused the collapse of the financial institutions and their subsequent bailout through FINSAC. Do we forget Dr. Omar Davies' 'run wid it' speech that told the foul story of how the 2002 General Elections was the priority for the profligate spending of the government?
When power is abused, the financial system, nay the whole country, is put into a tailspin and, ultimately, the main victims - not beneficiaries - are the poor and vulnerable. When the state has the power to create money, the real beneficiaries are the rich and powerful. If the government has the unchecked power to change the purchasing strength of the currency through increased money supply, with the consequent inflation and ultimate devaluation, why should anyone use Jamaican currency as a store of value?
If the value of the currency can be changed for political instead of economic reasons then its secure foundations are irreparably eroded.
To be sure, there are occasions which require the value of the currency to be varied, such as natural disasters, domestic or international shocks, increasing trade deficits, poor productivity levels, weak export performance, etc., which have economic consequences that can be easily assessed. China, for example, is presently producing very efficiently and exporting a wide range of cheap goods on the world market. Its trading partners feel its currency is undervalued, and have suggested a revaluation of the currency to cool its overheating and overpowering economy.
The Jamaican economy, on the other hand, has all the debilitating signs associated with an overvalued currency - huge trade deficits, high costs of production and lack of competitiveness at every level. The real issue is what is the transparent and independent mechanism to correct the currency when it is out of sync with market conditions? An independent central bank that monitors the production of goods and services, the trade balance, the inflow of foreign exchange, the inflationary pressure and economic growth is in the best position to do so.
POWER TO CREATE MONEY
In the USA, Alan Greenspan, the maestro of independent central banks, has demonstrated how a central bank governor manages money supply, interest rate policy and currency fluctuations to protect and benefit the economy. Similarly, in Barbados and the Eastern Caribbean countries, which enjoy a pegged currency and a currency board respectively, it is the central bank that controls money supply to reflect the ongoing economic transactions. The power to create money, especially to give the illusion of progress and prosperity and the feel good factor, whether at election or any other time, is not one that will be easily divested by politicians, who are more interested in retaining state power and political popularity than acting in the country's interests.
This extraordinary power to increase money supply should be removed from the executive government, as a government with that power is always tempted to create money, which temptation can rarely be resisted, especially at a suitable political time.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at Delchuck@Hotmail.Com.
