We need to clarify a few things about the Jamaica Observer’s 17 June 2020 story on BOJ profits:

https://bit.ly/3hPt4r7 

#BOJSpeaks #FinanceTwitterJA

2. The story got most things right, chief among them the fact that BOJ does not operate with a profit motive.

3. Instead, the primary role is to formulate and implement monetary policy to maintain price stability, plus ensure the maintenance of a sound and efficient financial system and meet the public's currency needs.

4. Where the story went off track is to suggest that our year to date profit of $19.16 billion (as at 27 May 2020) somehow put BOJ “in a better position to defend the local currency against 'wild swings'…”

5. First of all, as we have been at pains to point out in recent years, a new economic paradigm means that BOJ does not target the exchange rate in general or any rate in particular.

6. This means that ‘defending the local currency’ would not be a priority, since, with a rate that moves in both directions to properly reflect the state of the market, as it should, there is really nothing to defend against, outside of temporary shocks.

7. In fact, “defending the currency” is a phrase we have not used for over a decade, because of its declining relevance.

8. Secondly, if the 2-way fluctuations in the exchange rate in recent years are being described as “wild swings,” then we can’t imagine what much more volatile movements in the currency markets of other countries - as shown in this graph - would be called.

9. Thirdly, if we were indeed focussed on “defending the local currency,” it would be just a little difficult to do that in a foreign exchange (FX) market with our profits, which are denominated in Jamaican dollars.

10. The bottom line is that the FX in the FX market is supposed to come from one major place – private-sector export earnings, and the exchange rate is supposed to contract and expand like an elastic band to reflect the state of the market. That’s how markets work.

11. Thanks for your attention!