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The Fiji Dollar

The Fiji Dollar
Shoran Devi
January 12
10:06 2019

The Fiji Dollar (FJD) is a man­aged currency and it oper­ates on a fixed (pegged) ex­change rate regime.

It is fixed to a basket of curren­cies which are its major trading partners and they are, the United States, Australia, New Zealand, Ja­pan, Euro zone.

The relative weights of the cur­rency basket is reviewed on an an­nual basis by the Reserve Bank of Fiji and is confidential.

Pegged exchange rate regimes are generally thought to be associated with lower transaction costs, great­er certainty, lower real exchange rate volatility, higher trade open­ness, disciplined macroeconomic policies and relatively low growth of monetary aggregates, a better inflation performance and stronger inflation anchors.

These regimes may also benefit from lower inflation and greater policy credibility if the country to which the peg is struck has low in­flation.

Pegged arrangements provide a stable and low exchange rate risk during periods of general econom­ic stability; providing certainty for foreign investors, tourism, con­sumers, businesses and financial transactions.

But like most things it also has a disadvantage which international experience suggests that pegged exchange rate regimes are suscep­tible to currency overvaluation and higher current account deficits.

However, the improvement in Fi­ji’s price competitiveness stands in contrast to the upward trend in real effective exchange rates in some other Pacific island countries.

There is a chatter that the Fed will raise interest rate this month and this expectation have been driving the US dollar.

If this rate hike comes to pass this month then we can expect an even stronger US dollar and the impact of this will be most felt by our importers where they will have to spend more than they normally would.

But vice-versa for exporters where they will earn more in FJD.

Feedback: maraia.vula@fijisun.com.fj

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