Long before I knew that there was such a thing as 'dollarisation', I wondered why we didn't simply transact all business using the United States Dollar (USD) instead of our ever-declining Jamaican dollar (JaD). What got me thinking was the fact that, since our dollar lost stability and our confidence, businesspeople openly priced many goods in USD. This has served to immunise them from devaluation (but not totally from inflation).

With dollarisation, a country with a struggling economy pegs (anchors) its local currency to a major currency. Entirely abandoning its currency in favour of a major one is called full dollarisation. Pegging the JaD to the USD would 'authenticate' our currency and stabilise the exchange rate. Full dollarisation would provide a favourable climate for local and foreign investors.

Countries like the Turks and Caicos Islands, British Virgin Islands, El Salvador, Bermuda, Panama and Ecuador have officially dollarised using the USD. Other countries have 'dollarised' using the euro, the New Zealand dollar, the Australian dollar, the South African rand, the Russian ruble, the Indian rupee, the Swiss franc, the Israeli shekel and the Turkish lira.

Dollarisation

Dollarisation is a survival tactic but it gives the impression of a loss of sovereignty - a surrender to a greater power; however, it makes countries more integrative, protects against inflation, thwarts currency speculation (I am convinced this is contributing to our foreign exchange woes), helps to stabilise the capital market, stabilises the exchange rate and facilitates long-term fiscal planning by everyone (something that we are unable to do now).

The down side of dollarisation includes a loss of control over our own economy and exchange rates (de facto, a total submission to global market vicissitudes), the loss of central bank inflows from 'seigniorage' (the profit from minting) and the inability to be the lender of last resort (to provide enough funds to cover sudden runs on banks). Fully dollarised countries must also buy back their securities in USD (a daunting task for sure).

Grave economic problems like ours are exacerbated when people flirt with unofficial dollarisation (dollar substitution). Although the JaD is our only legal tender, the USD is often used, hoarded and speculated upon, and prices are openly and routinely quoted in USD for motor vehicles, real estate, rental (of rooms and cars), food, fuel costs, air travel rates, several other goods and a very few services (in non-tourist areas). These practices are individualistic and, therefore, beneficial only to a minority. Flirting with unofficial dollarisation not only declares but also encourages non-confidence in our economy.

Repercussions

Governor of the Bank of Jamaica, Derick Latibeaudiere, has come out strongly against dollarisation, citing the attendant vulnerability to external (economic) shocks given that we would no longer have a central bank to intervene on our behalf. And, several other people have nixed the idea but no one has mentioned one obvious repercussion of dollarisation - the highlighting of the ridiculous mismatch between our living expenses (based on the USD) and our income (based on the JaD).

If we were to adopt the USD as our monetary unit, we would easily see for ourselves that (USD-priced) commodities are being bought by people earning comparatively paltry salaries. Professionals, service and labour providers would therefore, feel obliged (if only as a matter of pride) to increase their worth, and value themselves more in keeping with USD-based salaries. Although it would be fair, this would no doubt send inflation rates into orbit. With this and several other negatives of dollarisation in mind, we will continue whining about our ailing dollar ad infinitum.

garthrattray@gmail.com