Jamaica: Reserve Requirements, GFC

In October 2008, the Global Financial Crisis (GFC) and liquidity shortages rocked American and European markets, causing investors to exit liquid Jamaican-dollar assets. The Bank of Jamaica (BOJ) feared a “disorderly depreciation” in the Jamaican-dollar (JMD) exchange rate to the US dollar (BOJ 2009, 44). In response, the BOJ raised required reserve ratios for cash and other liquid assets, the first increases since 2002. The BOJ raised reserve ratios three times—in December 2008, January 2009, and February 2009—because the central bank could not change its requirements by more than 200 basis points per month. The BOJ raised the requirement for domestic currency assets to restrict the supply of Jamaican dollars available to trade for foreign currencies. Further, the BOJ said that raising reserve requirements on the domestic currency would also help to ensure that banks had cash on hand when depositors withdrew their funds. The cash reserve ratio increase absorbed JMD 4.7 billion (USD 62.6 million) in the fourth quarter of 2008 and JMD 7.2 billion (USD 96 million) in the first quarter of 2009, according to the BOJ.