Public discussion surrounding the depreciating dollar have been one sided, looking only at the negatives associated with the decline. With the exception of Dr. Damian King (Senior Economist, UWI), I’m yet to see a different perspective on the implications.
Dr King views in summary:
Some Jamaicans (companies, individuals etc.) will lose from the depreciation in the dollar, while others will gain. Since both the winners and losers are Jamaicans operating in the economy, the country is not made worse off with a depreciated dollar.
King went on to give an example, highlighting that Every purchase of foreign exchange is also a sale. Somebody is selling it. So if you have to pay me $150 for a US dollar, what you lose is exactly what I gain. You pay more, I get more. If the cost of haircuts suddenly rise to $1,500 a head, that is terrible for everyone else but it is great for barbers. The whole country is not worse off because barbers are part of the country. The identical thing is true for any other transaction, including US dollars.”
Can we follow the Chinese? China has come under pressure from the United States (US), for supposedly manipulating their currency to gain unfair trade advantages – it is widely agreed that the Chinese dollar (Yuan) is undervalued. The argument is that the Chinese keep their dollar undervalued so their goods and services will remain ‘cheap’ and competitive in foreign markets. An undervalued currency also allows for lower cost labour which has resulted in some major US companies moving their manufacturing to factories in China (e.g. Apple & Nike) – outsourcing.
This Chinese example, presents a model for Jamaica. We need to increase production of goods and services and use the depreciated dollar as our competitive advantage. We’re unlikely to compete with China’s manufacturing prowess but services (BPO, Tourism, etc.) could provide superfluous returns.
Outsourcing to Jamaica: As I write, Sutherland International (a US base outsourcing company) is looking to launch its operations on the UWI Mona campus. This venture is expected to see over 13,000 students and other professionals being employed full-time and part-time. A depreciated Jamaican dollar is as much a ‘problem’ as it is an ‘opportunity‘. It is an opportunity for us to embrace a more modern approach in participating in the global world and improving our competitiveness.
- A cheaper Jamaican dollar will attract more investors who are looking to take advantage of Jamaica’s educated, yet highly unemployed labor force.
- Increase tourist visitors – It will be cheaper for tourists to visit Jamaica and as such more will come (The Land of Usain Bolt & Bob Marley)
- We will import less (due to a depreciated dollar) and hopefully increase local production
- Local goods & services will become more competitive in foreign markets – locally produced goods/ services will become cheaper.
Jamaica’s tourism industry (one of our main foreign exchange earners) could also benefit significantly from a depreciated dollar, especially with the expected tax hike for US consumers – what has been termed the Fiscal Cliff. Tax increase will reduce disposable income of US consumers and since tourism is classified as a luxury it will likely be first on consumers ‘cut-back-list’. A depreciated dollar could help Jamaica offset any repercussions to the industry in the event that the US Fiscal Cliff is realized.
Looking at Solutions:
We need to embrace the opportunities associated with a depreciating dollar and look to increase production, exports and services offered globally.
I welcome your thoughts.
About the author:
Luwayne Thomas Bsc., Msc.
Follow on twitter: @LuwayneThomas
At Balcostics our mission is to empower leaders with the required data and information to make better decisions. Learn more about our full list of research outsourcing services for individuals and companies: Click here