We should all do our best to stay safe and minimize the potential impact of #COVID19, which reminds us that despite the best-laid plans or intentions, bad things will still happen, and economies will at some point have to face a crisis or few. #BOJSpeaks #FinanceTwitterJA 
2. This is but one of the very critical reasons why prudent fiscal and monetary policies are so important, and why Jamaica’s ongoing economic reform programme – across both political administrations – was and is so very important.
3. A global crisis makes it more unlikely that the country can turn to anyone else for help, since everybody else will be under pressure. It also compounds the problem by making eventual recovery slower, since other people are less able to buy our goods and services.
4. If ever caught in this position while our economic house is not in order, our proverbial goose could be cooked, and not in the nice way.
5. Without the fiscal consolidation in recent years, GOJ would not have the “fiscal space” to implement a fiscal stimulus package, and would have nowhere to go but hope to borrow money and incur more debt, as opposed to being able to respond while still reducing debt.
6. On the monetary side, the possibilities of rainy days and crises is WHY CENTRAL BANKS HOLD RESERVES, and THIS IS WHAT RESERVES ARE FOR, not to unsustainably subsidize a market that should be supplied by private earners of foreign exchange.
7. Observers will note that BOJ’s major focus in the range of measures so far introduced is to increase banking system access to both US$ and J$ liquidity.
8. This is NOT because there is currently a liquidity problem in either currency. There isn’t, but when danger looms, we will not wait until a problem arises before proactively putting measures in place.
9. While we hope the crisis does not last very long, there will still be inevitable reductions in US$ inflows. Again, THIS IS WHY WE HOLD RESERVES.
10. A slowdown in economic activity will mean less revenue for individuals and companies in either or both currencies. If many of these individuals then turn to banks for support, then banks in turn could face some liquidity problems.
11. If you are a bank in this position, then who you gonna call?
12. BOJ is the “banker of the banks,” hence the proactive measures to provide liquidity, to enable banks to support their customers. These measures, however, are partially an extension of facilities that BOJ already had in place well before #COVID19.
13. (In our case, of course, “banks” broadly means ‘deposit-taking institutions,’ (DTI’s) and therefore includes merchant banks and building societies.)
14. These actions are not unprecedented. In 2008, in the aftermath of the global financial crisis, BOJ provided a US$ credit facility to local financial institutions (both DTI’s and securities dealers), partially to protect their credit arrangements with overseas institutions.
15. In more recent years, BOJ has maintained a deliberate policy position of liquidity assurance to the banking sector and thereby credit assurance to the business sector. To this end, BOJ implemented an Enhanced Liquidity Management Framework (ELMF) in 2013.
16. On the US$ response side, B-FXITT has been in place since 2017, and since the market has been slow to develop the much-needed FX forward market, BOJ introduced its own FX Swap Arrangement to assist authorized dealers smooth market demand on 22 January 2020.
17. In addition, the temporary increase in the FX Net Open Position Limit (FXNOP), effective 19 March 2020, (bit.ly/395IWAn) is actually a follow up to the 22 January 2020 measure to remove the J$8 billion limit on the FXNOP. The FXNOP was in turn introduced in 2018.
18. The FXNOP, in crude terms, means what is left after subtracting FX liabilities from FX assets.
19. Increasing the limit from plus or minus 20% of J$ denominated regulatory capital to plus or minus 25% therefore gives banks the freedom to both buy and sell more FX, thereby deepening the FX market.
20. Initially, the limit was plus or minus 20% of regulatory capital OR J$8 billion, whichever was less. Removing the J$8 billion stipulation helped all the banks, but especially the two largest players, since 20% of their regulatory capital was usually more than J$8 billion.
21. On the J$ response side, although J$ liquid balances in the banking system are more than adequate, BOJ’s proactive measures as banker to the banks have been even more wide-ranging:
22. Previously, DTI’s could borrow collateral-backed overnight J$ money from BOJ at a rate of 2.5%, subject to quantity limits based on institution size. This is the Standing Liquidity Facility (SLF). Breaching this limit would attract a penalty Excess Funds Rate (EFR) of 6.5%.
23. That penalty rate has now been removed, so if a bank runs short of J$ at closing time, the amount they can borrow from BOJ at 2.5% is now unlimited, as long as it is backed by collateral (bit.ly/2U1fWW8).
24. For several years, BOJ has operated a J$ auction on every Monday, a facility whereby banks can borrow money for 2 weeks at a time. This facility remains in place.
25. We had recently curtailed a facility whereby banks could borrow money, backed by BOJ or GOJ securities, for periods up to 6 months. That facility is now reintroduced.
26. In addition, effective 19 March 2020, BOJ has offered to purchase GOJ fixed and variable rate instruments from any DTI wishing to sell. Also on the table, from the same date, is an offer for the early redemption of BOJ instruments (bit.ly/2QrDNvF).
27. In a move aimed directly at the customers of financial institutions, effective 20 March, 2020, BOJ has removed its transaction fees on JamClear-RTGS transactions up to March 20, 2020 (bit.ly/33xmjn9).
28. Note that this fee is what BOJ charges the banks, which they then pass on to customers at a margin, so customers can still expect a fee, but significantly less without our base charge. A look at current JamClear-RTGS fees can be found here: bit.ly/3deBJB9.
29. In our capacity as guardian of overall financial stability, BOJ also stands ready to activate the Emergency Liquidity Facility (ELF) established in 2015, which, at BOJ’s discretion, can provide liquidity to DTI’s as well as other regulated financial institutions.
30. We trust, of course, that this one won’t be necessary, but it’s nice knowing it’s there.
31. Be careful and stay safe!!
P.S. Part #27 should have read, "...up to March *31*, 2020," not up to March 20, 2020. Apologies!
