Foreign Exchange Rates Remain Stable, Says NRI
Foreign exchange rates remain stable despite the adverse effects of Covid-19 in leading global economies.
National Research Institute Senior research fellow and program leader of economy policy program Dr Francis Odhuno in an NRI publication Spotlight mentioned that the threat of widespread Covid-19 infections is forcing Papua New Guinea’s open export dependent into a spin.
Dr Odhuno also said the country’s economic trouble continues to worsen with trading partners closing their borders thus less foreign exchange is being earned in PNG.
He said history suggests that major disease outbreaks often have adverse effects on financial asset prices including the foreign exchange rates.
“A component of the economic stimulus package must include key monetary and fiscal policies aimed at maintaining low and stable inflation, and to smooth fluctuations in the exchange rate.”
Dr Odhuno said the US dollar value of the PNG Kina does not respond to news on new Covid-19 infections worldwide.
He said there is near synchrony between the bad news about Covid-19 infections worldwide and the Australian dollar value of the PNG Kina, especially towards the second half of March 2020 when the number of new infections was skyrocketing.
But he says that the difference is probably because unlike the price of the Australian dollar, the price of the US dollar in PNG is managed by the central bank, hence its non-response to world-wide Covid-19 shocks.
He argues that since PNG’s contribution to the world market is small and cannot influence the international prices of global currencies.
Thus policy options to mitigate exchange rate fluctuations are needed.
“Strict foreign exchange controls over currency (mainly US dollar) trading may help in the interim. But the more important fact is that the Covid-19 scare provides the opportunity for the government to rethink how it manages the benefits from mineral, petroleum and gas exports by a sovereign wealth fund, “he said.
He said instead of debt and foreign aid, the stimulus package should be to support PNG businesses and individuals to recover from the ravages of Covid-19 pandemic.