AmbergrisCaye.com Home Forums Belize Life News Central Bank Governor Explains Exchange Rate Adjustment

The Central Bank says it wants to get more US currency into the banks and enforcing the exchange rate is a small way to make it more attractive for a fair trade. We spoke to the Governor via Zoom today.

Kareem Michael, Governor, Central Bank
"The example I like to use is, is the taxi or tour operator who may have received a tip for 20 US dollars and then attempts to go to the gas station to put in the equivalent of $40 gas. Um, he probably would've been in a number of instances, been refused by that gas station of taking the $20."

"Because when that owner of that gas station goes to the commercial bank to deposit, he gets, that owner of that gas station, gets roughly $38 and 60 cents after having given out, um, the equivalent of 40 Belize dollars in, in, in gas. So you can see how that's an issue, um, for the everyday person. So what we did, In early May was to focus first primarily on the cash that ends up in our economy."

"That's part of, um, circulation that we're saying, listen, um, that rate at which the commercial banks as authorized dealers can buy that cash is back to two to one. It creates an incentive for, uh, the public now to deposit within the banking system. And now to get the full $2 for one US dollars and not $1.98.

Jules Vasquez
"As you said, it's in the benefit of the consumer or of the of the regular citizen, however it works against the benefits of the bank. What was the pushback like from the commercial banks on this harmonization?"

Kareem Michael, Governor, Central Bank
"Um, certainly the commercial banks as authorized dealers voiced concerns, um, similar to yours that, uh, we would be, that they would be, um, uh, losing or incurring now more expenses for the administration of certain services and lines of products."

"And that's well within their right to express. They're obviously a private institution that is motivated by profit and to return, um, income or dividends to their shareholders. So that's understandable. Um, what we do hope that the financial model or business model employed by, uh, commercial banks would account already for some of these, uh, services and then you're pricing, various products for, um, to compensate for what may have been lost through this harmonization."

Jules Vasquez
"We know that this is a, a sub-industry for the banks, these ancillary, um, non-interest related revenue. Um, is this an area of ongoing enforcement for the bank? Is it, uh, an area that it'll continue to look at these areas of non-interest revenue?"

Kareem Michael, Governor, Central Bank
"Yes. Um, and it's not only, uh, occurring in Belize. I, and I think it's, it's also globally where we see, uh, various regulators focusing on non-interest income services, or the more reliance of that by, uh, banks and other financial institutions. Uh, instead of, uh, the usual or what you're built to do or what you're designed to do, which is lending. However, you should be aware that there's a danger in any regulator saying, "Well, you can't charge for this type of service or fee" because a commercial bank would simply say, well, if you're stopping me from doing this, I will put this same charge on another instrument."

"And it, it, you're, you're chasing ghosts, if you will. Um, so it has to be very carefully, um, analyzed and assessed. Um, and there's a, obviously a slipper slope if you are targeting certain fees without looking at the impact elsewhere. "

Jules Vasquez
"How do you make sure it doesn't have a knock on effect that will, um, that will affect the overall business climate?"

Kareem Michael, Governor, Central Bank
"Yeah. So we're hoping that there's a recognition that, um, an acceptance by authorized dealers or the commercial banks that the exchange rate is two to one. Um, and while we have just focused on the buying part of that, you are still earning margin on the selling. So when I now approach a commercial bank to buy foreign exchange from them so I can purchase some good abroad or so I can travel, that commercial bank can still earn a commission and a margin on that. So it's not that, um, you have lost all income, it's just that you're not getting bites at two sides, at twice, at the same, at the cherry on two sides of the cherry. So we're hoping that there is not a knock on effect on other services, other business products of the commercial banks."

Jules Vasquez
"But explain to me what else is the bank looking at that will redound to the benefit of consumers and especially average consumers, persons of average to low income?"

Kareem Michael, Governor, Central Bank
"Yes. Um, we're looking at, at, at other fees. Um, Levied on the customer depositor, um, by commercial banks, where, where we have done some analysis and we have identified, uh, a few services or afew fees where I think there might be scope for the regulator to limit or restrict."

Other pro-consumer changes in charges may come into effect in June.

Belize Dollar Weakening Against The Peso?

We also asked the governor about the exchange rate on pesos to Belize dollars. In the informal sector - meaning the Pesero's who ply the border - the value of the Belize dollar against the peso has been falling. Right now, reports say 1 Belize dollar will buy you less than eight pesos - the lowest rate in about a decade.

Now, we stress this is the informal sector - and those persons are not licensed money changers.

But, their local rate is a reflection of a weakening US dollar, and, thus, a weakened Belize dollar, since the Belize currency is pegged to the US.

The governor didn't want to say much about the variability:

Jules vasquez:
?"Right now, the Peseros are selling 1 Belize Dollar to 7 Pesos. And, you know, that is the lowest it has been in over ten years. I know, again, these are not regulated purchases. But what are you able to say about the strength of the peso against the Belize dollar and the US dollar and how it may weaken the purchasing power of Belizeans, who we know, like to go and buy their groceries, etc. In Chetumal?"

Kareem Michael, Governer, Central Bank
"I wouldn't comment too much on the forces or dynamics driving the appreciation of the peso vis a vis the US dollar. I would only be speculating on what those factors are and it's on both sides, the Mexican and also the United States economy. But obviously this is a system, this is a difference in a pegged exchange rate, which the dollar is pegged to the United States dollar, whereas the Mexican peso floats freely based on demand and supply factors and a whole slew of other factors against the US dollar."

"So naturally when you this will happen, when you have to different exchange rate systems where the conversion from floating to fix is really dependent on that currency, which floats because the bills that are just hard pegged to 2 to 1. Whatever happens on the Mexican side, because it's floats will then be translated worth it? I believe so."

Channel 7