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The Bank of America (BOA) is the only overseas bank willing to hold excess US currency produced by Jamaica’s foreign exchange system. Without this service from the Bank of America, Jamaica’s FX trading system would run into deep trouble.
Deputy Governor of the Bank of Jamaica (BOJ), Natalie Haynes recently told another media house that the Bank of America has continued to offer correspondent banking relationships for its FX trading services. She acknowledged that if the Bank of America stops accepting cash US dollars from the country, Jamaica would suffer.
Deep Trouble if Bank of America Pulls Out
Haynes further stated that in such an event, the country’s foreign exchange trading system would collapse as local banks will be forced to sell their cache of US currency to prevent holding excess US cash. Another banking official, Peter Higgins, the Assistant General Manager of the National Commercial Bank, suggested that Jamaica would encounter serious problems should the Bank of America back out from offering support to Jamaica’s FX trading sector.
Concerns for the continued relationship between the Bank of America and Jamaica’s central bank come against the background of the withdrawal of international banks from offering correspondent banking relations with the island. Since the introduction of strict due diligence requirements under the Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) regulations, international banks chose to de-risk. This tactic is to avoid paying the onerous fines and penalties for any shortfall in due diligence that might occur.
Still in Jamaica’s Corner
To its credit, the Bank of America has not withdrawn and remains in Jamaica’s corner.
The Bank of Jamaica, like any legitimate business, finds itself with excess US cash from its FX trading operations. Also, like other businesses, it needs another facility to hold the excess US cash that it generates. The Bank of America offers that service. The Bank of Jamaica typically repatriates excess US cash to the American bank in small batches not exceeding US$1 million per year. As long as the existing correspondent banking relationships remains between both banks, this FX service will continue.
Jamaica Signs FX Global Code of Conduct
Meanwhile, Jamaica became the first country in the Caribbean to sign the new Bank of International Settlements’ Foreign Exchange Global Code of Conduct. This is a Code of Conduct that provides guidance to foreign exchange traders. The island joins 65 other countries that have already signed on to this Code of Conduct. The FX Global Code offers to provide increased credibility to the country’s foreign exchange trading sector. Adherence to this Code also serves to reduce the risks associated with money laundering and terrorist financing.
Although signing the code is not mandatory it was reported that all 54 of the island’s Cambio operators signed it. The FX Code of Conduct outlines 55 principles that offer best practices in the foreign exchange market. As a signatory to this Code of Conduct, Jamaica signals its commitment to improving the transparency of its FX market.
The Jamaican banking sector stands to benefit from continued good relations between the BOJ and the BOA.