US dollar shortage driving up cash costs
Wayne Panton, Minister of Financial Services, Commerce and Environment
(CNS): Financial Services Minister Wayne Panton has said that he and the Cayman Islands Monetary Authority (CIMA) are heavily engaged in talks with banks, regulators in the US and other stakeholders over the US currency problem emerging in Cayman as a direct result of the money transfer businesses accepting only US dollars for remittances. The demand for cash from expatriate workers wanting to send money overseas who can now only do so using US dollars is driving up exchange rates and fees and has also seen banks limiting exchange amounts.
“We are trying to find a solution to the problem as quickly as possible,” Panton told CNS Tuesday, as he explained that the main issue relates to the reluctance of US banks to do business with cash transfer firms the world over.
The global problem is having a serious impact in Cayman as the annual cash remittances of some $180 million sent by ex-pat workers here to Jamaica, the Philippines, and other countries, once dispatched in both local dollars as well as US currency, is now being conducted entirely in US cash, Panton explained.
People wishing to transfer cash overseas are exchanging Cayman currency for US currency and causing a run on the cash in circulation locally and the banks’ cash reserves. As a result, the banks are now importing American dollars to fill the demand and passing the import costs on with additional exchange fees as well as limiting exchange transactions to their own customers or imposing dollar limits on cash exchanges.
Fears that a black market could emerge or that the cost of buying US currency will increase so significantly it will impact the local economy and even a devaluation of Cayman cash is causing real concern as the standard price for a US dollar of CI84 cents is already reaching CI89 cents in some circles.
Panton said that the solution to the potential cash crisis and possible distortion of the cash costs lies with the money transfer services relationships with their partner banks here and in turn the local banks’ partnership with their US banks.
With the risk-reward ratio for being involved in the money transfer becomes increasingly less favourable for the US banking sector, they no longer want to do business with other banks involved in these transactions.
Regulatory pressures and what are perceived as the risk associated with some cash transfer transactions has fuelled a mass exit from the business, which is now taking its toll.
However, Panton said that the cash transfer business in Cayman is very well regulated and the banks have nothing to fear about the money being sent. Most of it is the legitimate earnings of work permit holders being sent to support families back in their home countries through a well regulated system.
Nevertheless, the global trend by banks to pull out of this sector of the financial services industry in the long run will make their fears about the sector being risky a reality if it goes underground and becomes unregulated, he said.
With the very real demand for these services in Cayman, he is hoping that a local solution can be found through the current talks. He said discussions with US regulators to help them recognize the solid regulation in Cayman that reduces the risks commonly associated with cash transfers could influence the US banks.
“This situation cannot be allowed to continue and we are examining a number of approaches as to how it can be resolved,” he said. “In the end, there is a demand for this service the world over and someone will fill that demand,” he added, but warned that a regulated and transparent system has to be maintained to prevent the creation of an unregulated worldwide black market.
Why do banks only give .80 for usd cash? Because they used to have a surplus and needed to ship USD off island. Now there is a shortage, so why dont the banks just pay the correct .82 exchange rate? Restaurants and other tourist businesses need to pay the same .82 instead of punishing tourists for using cash instaed of credit cards. The justification for .80 is gone, and .82 would probably draw more usd cash into the cayman islands and offset the cash flying out to Jamaica and might eliminate this problem.
One question: How many tourists visit the islands every year? And what do they bring with them if not USDs?
There’s a hint in the article that the 183 Million in USD leaving the islands is a deficit, but what about our imports of USD from tourism?
Here’s an example with Total currency change in ()
A shop keeper buys a $50 trinket from a supplier in USD, puts it on display (-$50 USD)
A US tourist comes and buys it for $70 (+$70 USD)
Shop keeper buys another trinket to re-supply (-$50 USD), keeps half the profits and hires a housemaid for the other $10USD.
Housemaid sends $10 USD home to the Philipines
Net USD change to the Cayman islands: +$10USD
For there to be a deficit, the shop keeper would have to spend over $20USD on his housemaid. Is that what is going on?
From a source of funds standpoint, the certain smurfs earning $250 a week should no longer have the capability of delivering $2500 per week in untraceable cash back to Jamaica. That’s what’s been happening. This is a step in the right direction. Cayman should no longer be advocating for new ways to extend our unpleasant involvement in the dark transshipment economy of the Caribbean, abetting serious fraud, money laundering, and possibly terrorist funding. Why would Panton take the drug dealer side of this argument in the name of Cayman Finance with US regulators – that’s crazy to me.
All the fuss is, now, about money transfers services (MTS) and the shortage of US$ in the Cayman Islands, but wait until the CIG finally have to reveal that US Regulators are targeting Class B (Private Banking), in general, for conducting business similar to MTS. That is, this is not solely a MoneyGram, Western Union, or JNC problem; It is the problem concerning inadequate compliance policies on clients of Class B Banks.
When will Minister Panton begin the inform the Cayman Islands of the bigger picture? Perhaps, Cayman should read more about the US Regulatory actions across much of the Offshore Banking Jurisdictions, including Money Transfer establishments.
Again, this is crisis – temporary or otherwise – is all about the ‘high risk assessment’ and the Class B Banks (and MTS) inability to implement adequate compliance measures for these types of businesses.
I smell the hand of the banks in here too…they also should have known what was going to happen and prepared for it, as well as CIMA telling them to prepare. After all, the banks are where the brains are, right? Creating a little crisis to generate more cash? Investigation on the cards? In other countries banks doing this kind of thing would be fined millions…billions even..
wire transfer are still at .84 so we need not fear. The only thing that is costing more is the physical cash and only those who need physical cash will pay more. And the minister is right, these people will soon figure out a little website called paypal and this will 1 force them to modernise and come into the 2015 era and 2 run the old fashion money service business out of business.
It will make them more productive too as they can spend more time working and less time standing in line frustrated
Thank you Tech
Paypal requires a credit card or debit card attached to your account in order to send money to another PayPal account. The recipient requires the same to actually get the cold hard cash in their hands. I think it’s pretty clear the large majority of these people sending money home do not have bank accounts on island in the first place.
Paypal should setup kiosks like WU around the world and allow account holders to deposit and withdraw and send a varierty of currencies to other PayPal account holders. Cmon @Elonmusk help out the little guys.
As we know, CIMA issues the CI dollar. Every CI dollar is backed with investments of 1.2USD so CIMA could call in every CI dollar and return the correct amount of USD. If the demand for US currency continues or increases, then the solution is for the CIMA to start reducing the amount of CI dollars in circulation. Maybe this would be a good time to simply do away with the CI dollar completely. CIMA has the CI dollar fully backed, so no one other than those who make money exchanging currency, will lose anything.
Not cash, this issue is just a cash one, not a KYD issue per se.
I don’t want to do away with our Cayman dollar. Its ours. No one makes the UK use to euro despite being an EU member state. There are other solutions.
That would be comforting if it were true.
In reality, the vast majority of KYD are lent into existence by private banks and the *loans* are backed by collateral, but *not* the currency. The interest on these loans is paid by KYD that were purchased through currency exchanges, which are the other means by which private banks create KYD; that is to create them from thin air upon receiving USD in exchange. Similarly, the USD received is the bank’s asset and is not “backing” the Cayman currency. The final (and by far the smallest) means by which KYD are created is for CIMA to issue hard currency in exchange for USD, similar to the way that the private banks do it with digital currency. This hard currency is backed by CIMA, but that amounts to only KYD 90M total ever – nowhere near the KYD that floats around in the form of deposits and proceeds from issuance of loans.
The vast majority of KYD are not created by CIMA and are not backed by anything. This system does not unwind easily. However, this does not alter your conclusion — to ditch the feel-good play money, because nothing good will come from it in the end, only a devaluation imposed on the holders at some point. It will be like musical chairs.
It surprises me that anyone would take the exchange risk *and* the default risk of holding KYD in uninsured CI banks for such a tiny interest rate. KYD are not portable. If you need to do anything else in this world outside of Cayman, KYD are useless.
This is a blind-faith system of play money. If this exchange problem spills over into digital KYD (versus physical) then the local banking cartel could price-fix a higher interest rate for KYD deposits, in order to provide an incentive for holders of USD to sell it and buy KYD (and take the default risk of the bank!).
There’s no free lunch here.
– You can try to peg an exchange rate by floating the interest rate (works long term at the cost of the borrower).
– You can try to peg an interest rate by floating the exchange rate (works long term at the cost of the holder).
– You can try to peg both by inflating (only works very short term at the cost of everyone).
You are on the button thank you.
Yes you would want that to happen. anything to kill our currency. why you don’t go get a life.
Aaaah so time for foreign devil to go home and stopping capital flight!!! Cayman now learning a very hard lesson they are not here for us as our foolish politicians keep trying to sell to us in order to keep their affluent lifestyles intact.
Capital flight? Your grasp of economics makes Mac look like a mathematics professor at Harvard. The hard lesson is that if people like you continue spouting this bullsh*t then it may be the expats have to go and CIG will no longer be able to fund 60% of the CS or the welfare cheques it is so generous with. That is when you will receive your understanding in Economics. And I suspect you would be the first to say ” we need the expats back”.
No with the giant sucking sound of the Cayman economy collapsing to lull him to sleep, Nando will be able to cook on his caboose and live happily amongst the mozzies!
Yes 12:53pm 23/9 we can still cook on the caboose; we still know how to bake our heavy cakes in the ground; we know what a clothesline is; we always have kerosene and lamps ready and we grew up with mosquitoes so thick and so many they could smother a cow! We as caymanians don’t really benefit with all the funds generated by the financial sector because you, your ma, bro, sis, uuncle, auntie and cuzn are here sucking the life right out of it; living the life of riley! We will go back to our way of life pre financial sector cause one thing for sure you can’t move our beaches or our stingray city! With the whole bunch of unna gone we can be who we were and are! So plz if you wanna go…..there’s plenty of planes leaving each day! I suggest you go and read the article where the filipno is jailed in Singapore for making snide remarks at their natives! U can’t live in fashion anywhere else so that’s where you are here. What a pity we didn’t have enough “mozzies” to carry you home!!
And what did the Romans ever do for us?
12.53 I happen to own a small mosquito infested island and would happily let you use it, you up for it?
Why because our children and us don’t want to be your slaves for the rest of lives. Yes we would rather live and do without than to put up with people like you who are not a mouse but Imported rats.feel free to leave the ship you claim is sinking at anytime.
Stupid is as stupid does.
Switching our currency to the US dollar would solve this problem. In a lot of ways our money is “made up” to appease our ego. TCI uses US as their currency. Maybe we should swallow our pride and do the same thing. I know this will get a lot of thumbs down. But using their currency (which in effect we already do) would avoid this kind of problem in the future.
You are right. And all the thumb downers have demonstrated their complete misunderstanding. The very same people who zealously insist on maintaining Cayman Airways, Boatswains Beach and so many other unnecessary but costly government programs that are paid for by you, me and all the thumb downers.
Note to the thumb down brigade:
Google “sunk cost fallacy”.
Outsourcing control of a countries cash isn’t a smart idea, what happens if the US banks don’t want to send cash here anymore, or congress passes a bill to ban exports of the currency, or the IRS wants more information…or maybe Washington doesn’t want their currency used by us. BTW I’m not sure it would help as the limits on USD in circulation is becaise there is now a drain of $180 mio a year, that drain would be the same if the workers were paid in USD or KYD. So in simple economic terms we would need to be importing $180mio/year in cash, if the US banks have an issue with CNB sending $2 to 3mio a month back to the US how encouraging do you think they will be about sending $4mio a week here.
The USD remains the primary reserve currency worldwide. Portability (foreign ownership and exchange) is the very essence of a reserve currency. The economic benefits that flow into the USA because of the reserve currency status are the reason that the USD is a reserve currency in the first place. Monetary history says that even when the USD loses the top spot (they all do), it will still be in the top four portable currencies of the world for many years to come.
The KYD provides zero independence from the USA, because the KYD is not portable and the peg is only notional, and not even fixed. Notional decrees in law cannot hold a peg forever. This is evident in the fact that CIMA trades at 0.815 but the hard currency now trades at 0.88 KYD/USD. “But how can that be?” Because economics don’t come from LA or CIMA.
If we are afraid to use the USD exclusively, then we would be far better off adopting a second currency that is portable, such as the Euro, than we are using this non-portable, unbacked, arbitrary play money that our Class A banks shuffle back and forth on a ridiculously expensive 2.2% spread, generating north of KYD 20 million per year (together) of “exchange income” at the direct expense of residents and tourists — all so that we can have our own colored pieces of paper with stingrays and turtles on them. Essentially, this spread is a tax imposed by a banking cartel under guise of national pride. Upon collecting this spread, the banks send it to head office (in USD), just like C&W did with 90% of our exorbitant phone bills before we ended its cartel powers.
An even better alternative would be to use BitGold or the UPMA-American Express debit card system, whereby deposits are vaulted and insured and the funds are spent using debit cards. These systems render obsolete the idea of working hard for KYD stingrays and turtles and then lending them to uninsured Class A Cayman banks. And the idea of swapping back and forth between portable USD and non-portable paper stingrays and turtles for a round-trip loss of 2.2% each time doesn’t make much sense either, does it?
A non-portable currency is an illiquid dead end that eventually will leave the holders stunned by either a devaluation or a default, either of which will trigger the loans that are denominated in that currency to be called. If you don’t think this can happen, you might want to research what it takes to perpetuate a currency peg and then research how much of that work CIMA actually does not do. You might find that the likelihood that our tiny, notional, unsupported peg will break is much higher than you think. So the question is, would you rather break it voluntarily for creative destruction or would you rather just wait for actual destruction?
The only people who really benefit from the CI currency are the money exchange traders based in Cayman who take millions of dollars out of the pockets of workers and residents residing in Cayman every year.
British Virgin Islands, Turks & Caicos, Ecuador, Bahamas and Panama all have adopted the U.S. Dollar with the last 2 fixing their currency at 1 to 1 to the U.S. dollar. Cayman Islands also has one major point in common with all these places, tourism (mainly American). So the answer is adopt the U.S currency or keep the Cayman dollar and peg it at 1 to 1 to the U.S. dollar like in Bahamas and Panama. The time has come to wipe out the local money exchange traders to the benefit of all the people who live and work in these islands. Whether we realise it or not we are paying a high price to have our own currency. From an economic perspective, it is simply not worth the cost.
Garfield, You also forgot Bermuda where the U.S. dollar is also used and is one to one with the Bermuda dollar. What have all these places figured out that we in Cayman have not figured out yet?
Could all of the thumb downers who are not directly working for foreign exchange traders / banks in Cayman give all of us one good economic reason why the Cayman Dollar should not be replaced by the U.S. dollar.
So no one saw this coming? Classic Cayman F**k up…this has been talked about for months (no CI transfers) and CIG/CIMA did not work out what would happen…seriously?
Since you are so prescient and astute, keep us in suspense no longer and tell us what solution you have “worked out”….or are you only capable of classic dumb f**k comments? Seriously!
It’s quite simple. If you can’t work it out for yourself then it is pointless explaining it to you, you wouldn’t get it. But please keep on worrying about the F word. That”ll solve it.
The solution is to help bring everyone into the banking system, pay people with chqs and online transfers and allow them to transfer funds without having to use cash at all
To be fair, it is neither “classic” or a “Caymankind supernova”. When these are pointed out, you are in with a chance at winning the George Foreman grill.
Sadly, it is just business as normal so it is just an everyday Cayman f@@kup!
Their own country have a limit on how much money can leave their country. Why not ours too? Get our people back to work.
There are some people on here who believe that putting controls in place solves everything. Time and time again they have been proved wrong. Look at Venezuela, Cuba, Russia, Brazil, North Korea. Worked well for them, right? You want to be like them? Great! The same people wanting controls will be the first wanting them removed.
While I agree with your statement allowing the free market to regulate itself doesn’t work either. Look at the various crashes in the market that occur due to creed and lack of regulation.
Caveman economics.
Minister Panton – For the ministry of stating the obvious. How about more actions and less words?
I pay my staff in US – my money and account is in US and CNB refuses to cash my US paychecks to non-account holders in US currency!
Outrageous and unacceptable!
This happened to my husband the other day! He had a U.S. Check (so drawn on a U.S. Dollar account) and they told him he couldn’t give him US unless he had an account there. Insane! How can you not collect on the currency in which the check is issued?
You can have an account in South African Rand but banks aren’t going to be matching your deposits with a bag of cash in the vault. US dollar accounts are a foreign currency account, bet they would have given you the legal tender of the Cayman Islands.
At an exchange rate of 88
We do not routinely transact in Rands, Rupees or Pounds, but we do transact routinely in USD. There is no business, that I know of, on this little rock which does not accept US currency. And none that I know which accept Rands. The USD is as common as the KYD in our daily life. Therefore, it is logical to assume that if one presents a check in USD, it would be processed in said currency, as USD are traded freely, deposited in abundance, and viewed as an effective second currency in Cayman.
So this is basically the expat working population’s fault! Seriously?
How can this sitting minister of finance allow these remittances services refuse to take the legal tender of the Cayman Islands the CI Dollar beats me, it is pretty obvious that this has a very destabilizing effect on our economy. By the amount of waffling I here coming out of his mouth which tells me he is out of his league and obviously does have a clue what is going on.
CI dollar is pretty useless outside Cayman
Pretty useless inside the most expensive country in the world too, unless you have a million of them.
You are mixing up the Minister of Finance (Archer) with the Minister for Financial Services (Panton).
That is the question indeed and precisely where the Ministry of Financial Services and CIMA have lost credibility in this situation.
The Minister of Financial Services via CIMA should have weighed in and forced the MTS business to accept CI dollars.
CI dollars are, after all, Legal Tender in the Cayman Islands. The ramifications are daunting when a group of businesses responsible for $180,000,000 in transactions can outrightly refuse the Legal Tender of the country in clear contradiction of the law with no action by the Regulator.
Can someone explain this in simple terms? If I send $100usd to Jamaica using a transfer service the cash doesn’t actually leave Cayman, it goes in the till at the exchange business and gets deposited into its bank account and therefore stays in local circulation. How does that reduce the USD in circulation on the island?
The US$ is being shipped off Island. Because folks now have to buy US$ currency to send it is causing a run on the US$ at the banks. They are not getting as much as they used to because the remittance companies can no longer bank the US$ with the local banks. They have to bank it in the US$ so the money is not being recirculated so the banks now have to purchase US$ and they have to pay more for it which now causes the price of the dollar to go up against the CI$
But the price is pegged.
Quite clearly the price is what one is willing to pay. Michael Manley’s Jamaica anyone?
Let’s say you can pay in either Cayman Islands dollars or in frozen pizzas. One Cayman Islands dollar is equal to one frozen pizza. But…suddenly all the frozen pizza ships in the world sinks. There are now very few pizzas left. At the same time Foster’s will only except payment in frozen pizzas. You need groceries, everyone needs groceries. The only way you can get groceries is to pay with frozen pizzas. What do you think happens to the value of frozen pizzas? It goes up. Supply and demand.
That’s how it used to be but since the corresponding local bank is no longer working with the transfer companies , they really are now sending the $us money off island .
@Anonymous 4:12. It impacts our money in circulation because ALL US dollars are sent onto the USA (all US dollars ultimately reside in NY!) for deposit into an account held by JN Money in the USA. US$ is not legal tender in the Cayman Islands bo bo.
In prior times, people used CI$ or US$, but they remained in Grand Cayman’s money supply as the local banks accepted both. Indeed, the money transfer centers also accepted both types of currency.
In 2014, it was estimated that a total of $180 million was remitted overseas. It then follows that if that money is now being remitted in strictly US dollars, that our local money supply is being depleted by a like amount (less money in circulation or M1 depleted by $180million).
Hey George, if US is not legal tender in Cayman, then how did I buy patties for my breakfast with a $20 bill bo bo?
Because you are not very bright to give up the US$?
Legal tender means that persons are obligated to accept it in payment of a debt. They are not obligated but are smart to do so.
Not that difficult people, I get paid in US$ maintain accounts in US$ and just transfer what I need for expenses to CI$. All my savings is in USD, would not risk having CI savings.
The amusement I get by watching a group of people complain, about money being sent off island by the people it belongs to, in an economy that is almost entirely based on money being sent to it from other countries is the greatest thing ever!
Wow! Because remittances are sent to Jamaica it should raise a red flag? I guess they along use the cash services. Stop the Jamaica vs cayman thing now, it’s an issue affecting every nationality who uses the service. Look at the bigger picture. So much hate…
If you had bothered to read this article (or any of the half dozen articles about this topic published in the last mont) you would realize this is not a Cayman vs Jamaica issue. Cayman doesn’t make the rules on this. The US banks said no more cash from transfer businesses. These banks couldn’t care less about some petty grudges between two little Caribbean Islands.
It is pointless having our own currency, it being fixed to the US dollar in any event. It is time we adopt the US dollar as our official currency. Fix a conversion date and get on with it.
Just like Cayman Airways and other trappings of state that are no longer affordable the CI dollar must go.
And, no, you are not losing 20% of your worth as a result. So pull the other one.
Good idea, and I agree, but if banks start losing their 4%, what other crap will follow??
Not just banks, all the restaurants convert KYD to USD at 0.80 so they can add a little to the tourist bill, offsets the credit card charges.
And what happens when the US banks don’t want to ship any more currency here?
A black market will spring up. Just like Jamaica in the 70’s and 80’s.
Eliminating kyd wont change or fix this problem.
This issue has spiraled out of control and the longer it’s left unattended it will get even worse.
The local banks have now “discovered” a new source of revenue and that is why if any solution is to be found, it will not come from them.
Consider that for every $100.000 exchanged to US$, a bank makes $3,333 in FOREX gains.
Oh, and on a combined basis, at 2014 remittance levels, the over-all potential Gain from foreign exchange trading equals a “cool” $5.9million.
The sheer cost of lost time and energy that our residents now are subjected to to use this service is a crying shame.
I know of a friend last week, who on Friday last, from the time of going to his bank to line up to get to cashier to get US$ and then having to go to a second one as his did’t have enough and then going to a JNM centre at a local gas station, took 4 1/2 hours to accomplish. His entire afternoon LOST!
Unless you haven’t noticed the banks don’t want this business, I think you’ve used the wrong rates in your calculations. KYD to USD is exchanged at 0.84, mid rate is 0.83333, so USD 800 profit in FX for the banks per $100k. Seeing as cash costs 1% to ship in, they make approx 0.2% loss on these deals.
If the banks were making such a killing why are they not falling over themselves to facilitate the exchanges, the most accomodating allow non customers 1 exchange of $500, some won’t even help out non-customers, do you really think they wouldn’t be lining up to book these deals if there was so much profit in it?
US cash is dead, it’s untraceable and a source of concern for US regulators, their efforts to stamp out cash based transactions will only get more intense. We need a better solution that doesn’t rely on suitcases full of cash being transported to/from Miami.
US dollar crisis
There is a need for detailed facts to be presented to avoid misconceptions in the recent article in the news media regarding workers sending both local and US dollars abroad, and Foreign correspondent Bank(s) reluctance to deal with local banks and fears about the money being sent.
First of all the duly licensed Money service business entities MSBS have only recently started to accept US dollars only for transmission overseas as their local Bank has stopped selling US dollars and is charging a fee for withdrawals from US dollar accounts subsequent to their notice to the MSB that they would no longer provide banking services to them, more on this later on. So, the MSBS prior to recent events have been receiving requests for transfers paid for in CI dollars but transmitted in US or they received US dollars directly from their customers and paid the required fees in either US or CI.
Readers should be aware that Banks import Cash from the United States through their correspondent banks to service the local demand for physical cash in day to day trade activity of banks, individuals and business entities, this therefore is one of the sources for uS cash on the island as well as book to book transactions by business entities and cash spent on Island by tourists and visitors. Also noteworthy is the fact that Banks sell each other cash, and ship excess US back to the United States a source of consternation for US regulators.
Now to the issue of the origin of the US dollars with respect to money transfers and
workers sending CI dollars and US dollars; the trade of the Money Service business is US dollars, which is purchased by the foreign workers with their CI dollars acquired from their employer, from their accounts with banks or from US dollars paid to them by their employer who have US accounts. There is a small trade in US dollars @.80 cents for 1.00 US negotiated by workers and even residents through and from individuals who work in the tourism industry e.g. Hotel workers and taxi drivers. In many cases the foreign worker establishes accounts with Local banks in Unites States dollars and converts Cayman dollars and deposits same to their personal accounts; and withdraw same from their accounts and sends it to their families in their home country via the Money Service business entities (MSB)in Cayman. This business has thrived due to the higher rates charged by banks versus rates charged by the MSB’S. Banks have traditionally foregone this high traffic business as transactions are in small denominations and not profitable.
MSBS bank the funds received from their customers for transmission with local Cayman Banks and it is understood that lately there is only one local licensed banking entity which offers this service., which leads to the subject of the Foreign correspondent Banks reluctance to do business with cash service business. Firstly one must view events in the US a few years ago where some of the major banks have been fined millions of dollars for allowing funds from drug operations to be passed through them, in other words for assisting in the process of money laundering. As their processes were deemed substandard in detecting this type of activity they have beefed up their UnitedStates and foreign operations and scrutiny of their correspondent banking relationships to ensure that they are not providing a mechanism for money laundering through their account relationships. This has created a regime of costly enhanced monitoring by banks in Cayman, which are supervised and regulated under the auspices of International regulations on Anti Money Laundering. This rigorous scrutiny of the accounts and transactions of local banks has no doubt caused local banks to resist their costs associated with Compliance and scrutiny of their accounts by the correspondents, although one would assume that they are providing this service at a cost above their expenses or they should have pulled the plug do to speak a long time ago.
In conclusion, it does not appear that the US dollars being consumed is the cause of why the MSBS are requesting US dollars , but rather the change that has been made by its local Bankers. As shown the origin of the US dollars comes through normal trade on these islands and the Banks are obliged to scrutinize the sources of the funds they receive and transact. The question arises as to whether it is the US correspondent Banks at this time who are forcing the local banks not to transact with the MSBS or is it that local Banks are not substantially able to provide the proper resources to fully comply with Anti Money Laundering scrutiny. Indeed the situation is dire and demands that all aspects be investigated for it it not only affects the livelihood of the families of foreign workers , but casts a shadow of doubt as to the robustness of banks
AML systems, and the ability of Government to stop this spiraling situation of black market rates and speculative fears of CI devaluation. All stakeholders need to sit with Government to rationalize the best solution to this matter soonest to avoid further reputation damage to the Cayman Islands. Banks are licensed to conduct business in the Cayman Islands cannot just abandon a service or force a service to be abandoned without interaction with the There is a need for detailed facts to be presented to avoid misconceptions in the artiicle regarding workers sending both local and US dollars abroad, and Foreign correspondent Bank(s) reluctance to deal with local banks and fears about the money being sent.
First of all the Money service business entities MSBS have only recently started to accept US dollars only for transmission overseas as their local Bank has stopped selling US dollars and is charging a fee for withdrawals from US dollar accounts subsequent to their notice to the MSB that they would no longer provide banking services to them, more on this later on. So, the MSBS with several locations on Island had been receiving requests for transfers paid for in CI dollars but transmitted in US or they received US dollars directly from their customers and paid the required fees in either US or CI.
Readers should be aware that Banks import Cash from the United States through their correspondent banks to service the local demand for physical cash in day to day trade activity of banks, individuals and business entities, this therefore is one of the sources for uS cash on the island as well as book to book transactions by business entities and cash spent on Island by tourists and visitors.
Now to the issue of the origin of the US dollars with respect to money transfers and
workers sending CI dollars and US dollars; the trade of the Money Service business is US dollars, which is purchased by the foreign workers with their CI dollars acquired from their employer or from US dollars paid to them by their employer who have US accounts. There is a small trade in US dollars @.80 cents for 1.00 US negotiated by workers and even residents through and from individuals who work in the tourism industry e.g. Hotel workers and taxi drivers. In many cases the foreign worker establishes accounts with Local banks in Unites States dollars and converts Cayman dollars and deposits same to their personal accounts; and withdraw same from their accounts and sends it to their families in their home country via the Money Service business entities (MSB)in Cayman. This business has thrived due to the higher rates charged by banks versus rates charged by the MSB’S. Banks have traditionally foregone this high traffic business as transactions are in small denominations and not profitable.
MSBS bank the funds received from their customers for transmission with local Cayman Banks and it is understood that lately there is only one local licensed banking entity which offers this service., which leads to the subject of the Foreign correspondent Banks reluctance to do business with cash service business. Firstly one must view events in the US a few years ago where some of the major banks have been fined millions of dollars for allowing funds from drug operations to be passed through them, in other words for assisting in the process of money laundering. As their processes were deemed substandard in detecting this type of activity they have beefed up their UnitedStates and foreign operations and scrutiny of their correspondent banking relationships to ensure that they are not providing a mechanism for money laundering through their account relationships. This has created a regime of costly enhanced monitoring by banks in Cayman, which are supervised and regulated under the auspices of International regulations on Anti Money Laundering. This rigorous scrutiny of the accounts and transactions of local banks has no doubt caused local banks to resist their costs associated with Compliance and scrutiny of their accounts by the correspondents, although one would assume that they are providing this service at a cost above their expenses or they should have pulled the plug do to speak a long time ago.
In conclusion, it does not appear that the US dollars being consumed is the cause of why the MSBS are requesting US dollars , but rather the change that has been made by its local Bankers. As shown the origin of the US dollars comes through normal trade on these islands and the Banks are obliged to scrutinize the sources of the funds they receive and transact. The question arises as to whether it is the US correspondent Banks at this time who are forcing the local banks not to transact with the MSBS or is it that local Banks are not substantially able to provide the proper resources to fully comply with Anti Money Laundering scrutiny. Indeed the situation is dire and demands that all aspects be investigated for it it not only affects the livelihood of the families of foreign workers , but casts a shadow of doubt as to the robustness of our AML systems, and the ability of Government to stop this spiraling situation of black market rates and speculative fears of CI devaluation. All stakeholders need to sit with Government to rationalize the best solution to this matter soonest to avoid further reputation all damage to these Cayman Islands. Banks are licensed to conduct business in the Cayman Islands and should not be allowed to unilaterally abandon a service or force a service to be abandoned without interaction with the regulators, government and individuals and business entities affected.
Cous you really don’t read these submissions do you or you would see that it’s duplicated. What a shame .
Yes, the post is duplicated, but highly informative. All readers should read the main post (1/2 of it)
It was such a thrilling read, I didn’t mind reading it over. If you didn’t understand the first time, you should be able to by the time you get to the end!
Maybe if everyone stopped using 3rd world money transfer bullshit systems and actually had bank accounts this would not a problem….
Third World money transfer systems? Yes, the name “Western Union” does sound very third world. Pompous idiot!
The people that need to send money abroad should set up a legitimate bank account with a letter from their Cayman employer, valid immigration docs/work permit and Passport ID, source of funds, and other requisite forms (like every other good citizen), and send a legitimate and traceable wire payment to someone that has their personal affairs organized sufficiently to have a receiving account. If everyone was a grown up, gainfully employed, properly resident, and/or not doing illegal stuff, we wouldn’t be talking about this. Employers and local banks should be helping and encouraging the honest people to do this, if for no other reason than ease of payroll.
The CIG should not be advocating to US regulators to maintain unregulated and untraceable money transfer businesses while in the same breathe professing to be “well-regulated”. The US knows that $110mln was sent from Cayman to Jamaica through these mediums last year and that this value exceeds all rational metrics that should have raised red flags for CIMA years ago. Cayman also plays host to all the classic proceeds of crime laundering services like “Cash for Gold”, precious metal/gemstone dealers, and pawn brokers. All of this shady stuff should be purged from our shores if we expect anyone to take these “well-regulated” characterizations seriously.
You either live in a Crystal palace or must be joking. This are people making less than 1000 a month and sending a few hundred back home, the banks don’t want them.
…yet they manage to send $180 Million dollars out of the local economy. “Crystal Palace”, now that made me laugh, you must be talking ’bout Alden!
There are 10 year olds with bank accounts. No jobs and no transactions. Just a valid address and someone willing to sponsor.
Wires are expensive to send, around $40 each, that wouldn’t be cost effective for sending small amounts
Doing the maths, Government charges 2% on cash transfer, most banks will do a small wire (less than $1k) for about $20, cash transfers cost money as well($10/$15?) so if they were to send USD 1k by cash transfer it’s $20 to Government plus the cash transfer fee vs bank wire of $20, Break even is around $650. No waiting in line for cash exchanges, no rip off black market rates, probably can send it via a banking app. Not such a crazy idea.
The cash transfer services were not charity operations either, taking several points on every dollar of the $180mln every year. A monthly bank wire instead of weekly piecemeal would be about the same, maybe cheaper.
The average domestic worker/gardener that the upper/middle class people rely on gets paid in cash and most times not the amount that is stated on their work permit. These workers do not get bank accounts because the fees that are so “little” to us is actually a bag of rice and a whole chicken for them. Not to mention that they send their money home to rural communities/places where banking is most likely not available and the people handling their finances don’t even have bank accounts etc.
I agree with what you are saying from a compliance perspective, that the average decent person should have a bank account etc, but we have to take into account the very low wage/income people that literally make 400 a month (I actually know people making this wage on island). Things are very different for this class of people.
Yet, we need them. It sucks for the honest people just trying to save and support their families back home, all at the expense of the criminals laundering money.
I hope a solution can be reached to support both the regulation of the financial services industries and the low income workers.
do you know how much it costs to send a wire transfer or how long it takes to get from point A to point B? Someone here in Cayman making 600.00 per month and sending half of that home to feed hungry children in the Phillipines or Jamaica has to struggle to pay the transaction fee and now you want them to pay wire transfer fees which are almost 3x the cost of the money transfer fee? Most folks from the Phillipines actually pool their resources so that they only pay one transaction fee because the funds are so small. Stop living in a glass house.
By using a money transfer service they already lose 2% in government fees, then an additional cost by the cash firms, 2% of $500 is $10, money transfer charges another $10 (bit of a guess), and probably makes some in FX, Banks charge $20 for a small wire (2 banks I checked) of less than $1k. Reality is they might need to send money back less frequently, which is going to be tough at the start, but should even out. Not ideal, but it’s all i’ve got.
Yes, wire is $40-65 and takes 48 hours to credit for value date. Next.
Another cartel. I can and have transferred money here from Europe. Costs 10 euros.
You know what amazes me? “These people earn less than $1000 a month yet they send millions of dollars out the country.” Apparently, “these people” have no right to work hard for their money and send it back to feed their families. “These people” should pump it back into an economy that doesn’t welcome them, even though they have to pay rent and food out of that $1000 before they send it home. Let me state for the record that no expat spends more money on this island like Jamaicans!!!! Caymanians DO NOT spend in their own country because they can fly to Miami!!! Hence the whole “buy Local” campaign. Please educate me as to what you would want expats to do with the money they earn??? What would make you all feel happy? Expats having no money at the end of their roll over??? Or expats leaving their assets here for the local economy and going back broke??? The whole aim of coming here is to make a better life. What would it profit us to leave our families and have nothing to show? It’s a sacrifice. I really wish some common sense would prevail on this island.
Can someone explain simply how devaluation of the CI dollar comes into this? Thanks.
One word…no in fact… 2 words..”supply and demand”! (that’s why…but then again…can be found in Economics 101)..
..opps… turned out to be more than 2 words…sorry…smile.
Sorry George, I still don’t understand why the D word is being used, even with your comment about supply and demand. I don’t understand Economics 101 so have no idea why the CI dollar losing value comes into this. And I bet I am like 90% of the population. Someone needs to say what’s going on. But thanks for trying to say something unlike the friggin idiot who gave me a troll. CNS really gets to me sometime with its idiotic bozos.
Cayman dollar value is pegged and does not change. Price of acquiring physical US cash is changing – demand for US notes has increased because the money exchanges wont accept CI notes, and the banks have to ship the notes in to increase the physical supply of notes which costs money.
PS George Ebanks taking the piss out of someone for failing to understand Economics 101 is hilarious. Tell us what your qualifications are in that subject, George.
@Anonymous 6:45pm.
Ok..let me go this route.
In 2014, CIMA says we remitted a total of $180 MILLION aboard. Now, if that same level were to continue say into current times, the CI$ would come under great downward pressure as the “preferred” currency would soon be the US dollar.
That’s why I said “supply and demand”.
See, the more “demand” there is for the US dollar vs our own KYD; it will cause the devaluation of the KYD because it may not be able to sustain such a level of demand conversion. Plz remember that the KYD is backed 110% at CIMA (our currency regulator) by Gilt edged bonds. As the KYD is depleted and the USD increases; it will also have an impact on CIMA’s ability to manage the money supply as they might not be aware of the level of its currency exposure.
It’s not easy to properly explain it here but I tried to give you a “snap-shot” of the problem that could cause a de-valuation of the KYD viz a viz the USD.
And, its a rather serious problem that we face, if I might add.
Sounds like another cog is engaged and turning in the plan to come from all angles. There will be more to come from the FIFA scandal and associated players. Try burying the next lot behind the headlines somewhere!
Supply and demand affect depreciation, not cause depreciation of the currency, George.
This is something that should have been tackled years ago. The amount of money being transferred out of these islands by ex-pat workers has been insane. If this now puts a cap on it is that a bad thing? The knock on effect will also be to make these islands less attractive to certain groups of workers, many of whom we could probably do without anyway. Sounds like win-win to me not a crisis.
Lets see if you think the same when costs go even higher because you can’t get cheap labor anymore to service you at restaurants, gas stations, shops, gardeners, nurses, etc. etc. etc.
Errrr. Nurses are not cheap labour my friend. These days half of them have first or second degrees! Just a point of order.
I don’t think putting currency controls in place is the answer, they’ve earned it, it’s up to them how they spend it. Government already takes 2% off these remittances. They do need to get out of the cash business and into something less shady, shipping in truck loads of cash isn’t going to sit well with anyone.
@Anonymous says:
22/09/2015 at 1:37 pm .
What you don’t understand is whether it is sent via transfer or not. When Jamaicans are going home they are going to take the cash with them still.
Because note that when you travel any where in the world you can still access your bank account here via the visa debit card.
ROOT OF THE PROBLEM is the number of work permit holders who do not willingly spend a dime in the local economy, but syphon funds home every week and drain the local retail / service sector of business!! No names called.
Nutter! Every Caymanian I know just loves a Miami trip to go shopping! Very few buy local. Too expensive. For us too! There you go, Caymanians and expats finally united in something!
Such a gracious attitude! First of all, my husband and I are both employed on island because we have educations and specialized knowledge in the medical/technical fields that no one else on island has (they tried to find someone, believe me). You probably COULD do without people like us, but your quality of life might be impacted by that. Secondly, we had every intention of keeping our money on island and investing it. However, once we became familiar with the anti-government rhetoric of the government and citizens, the level of (alleged) corruption, and the slow courts system we BEGAN moving our money off-island to protect ourselves. Finally, if it wasn’t for the massive amounts of money brought in through work permits and the multitude of other fees the government charges us, residents would probably be paying taxes and/or higher duties. And to top it off, once we leave here our earned retirement income will be held hostage for at least 2 years to help fund the current system.
Sadly, we took a combined pay cut of nearly $50,000 USD a year to come here because we bought into the “caymankind” mantra. I want to thank people like you for setting us straight before we bought a house here.
sorry, meant “anti-expat” not anti-government
7:58 I would suggest you pack your traps and catch the next flight out. You sure as hell has benefited more than you claim you lost. Why have you stayed so long if your lost has outweigh your gain? Get off of you high horses and don’t wait for the horse to bolt through the fence.
You know, one day enough idiots who post at 3.35 in the morning who are clearly doing something they shouldn’t be, will say just enough that we all go somewhere that actually wants the income. Kiss your welfare checks good bye when that happens and welcome to the Venezuela of the Caribbean. I personally will piss myself laughing. You will only have the tourists to rob and they will stop coming as a result. If you had half a brain cell you could be dangerous.
Just Driftwood, you my friend are nothing more than a part of the problem. You never had any intention of investing in Cayman and becoming a part of the Cayman community………..You are, and obviously always were, here only for the money. Now you have just latched onto an “excuse” for your bad behavior by repeating the same comments that people like you perpetuate against Cayman and Caymanians.
If you are aware of corruption, why are you keeping your mouth shut about the specifics of what you “know”? I am sure there is no “alleged” corruption where you are sending your money to or where you came from!
My “quality” of life may go down if you “drift offshore” but it is a trade I am personally willing to make. Where did you and your husband get educated ……at a school for two?
Get over yourself, there are hundreds of people who are as qualified, or more qualified than you, around the world that would gladly take up your job and your work permit…………I am sure that at least 10 of them would come here and assimilate, invest and live out the rest of their life with us………we just have to be more selective and avoid those that think like you.
Here is a tissue for all those tears you are crying about having to wait 2 years for that big lump sum check from your pension……As a Caymanian, I have to wait 15 years until I turn 60 and then get mine back in small monthly payments.
The wind blows from the North-East and the current sets Westerly every day, try to get adrift as soon as possible ………..Cayman is better off without people with your attitude.
WaHaPen
If there wasn’t such an expat “buffet” on local jobs, brought on by the Cayman Islands Government themselves (to the tune of $75 Million dollars in revenue), the $180 million sent off-island by expat workers would have benefited the local economy, and this crisis would be non-existent.
Trying to use a band-aid to heal the hole in your foot, after you, yourself had shot it, is just plain ignorant.
Get to the root of the issue, which is plain as day… The greed and myopia (short-sightedness) of this country’s government’s policy makers is WHY were in this mess in the first place… no jobs for locals, shortage on US$, and $180 Million dollars leaving our economy.
The CIG has sacrificed $180 Million input into our local economy, where everybody would have benefited, for a $75 Million (government only) revenue stream. Pure Greed.
Nope, they earned it, they can spend it how they like, none of mine, or your business. Just because it’s ‘surplus’ doesn’t automatically mean it stays in circulation in Cayman, if people aren’t currently spending the money here they won’t suddenly do so just because they can’t send it home. Same principal with savings, money earned and not spent goes into savings, not into circulation. The only way it stays in circulation is if there’s something worth buying here to export out of Cayman, or if those workers decide that they are going to spend more of the money they earn, both unlikley.
The money ‘sacrificed’ has bought human capital, it’s paid for all the services that make local companies money, brought a better way of life to those employing these people, built houses, schools, roads, hospitals. If Cayman were fully self-sufficient in human capital, ie there were enough Caymanians to do all the jobs, then you would keep more of the money on island, but just as Fosters have to buy groceries from overseas, instead of being able to feed everyone with local produce, you have to pay for these workers. The difference between Fosters and these workers is that 100% of the money paid out stays out of the country, at least with workers you know a chunk of cash will stay in Cayman. So instead of looking at the money that these workers have earned and saved look at how much they’ve spent, trust me it’s better to be half full.
Employ the locals and more money will circulate in the country. The economy will be alive and work well. Reduce the need for unnecessary work permits (people walking the streets, knocking on doors) seeking a days work or loafing around buildings. The board has to clamp down on issuing permits of convenience.
We will forever require some work permits but at this point, we certainly need to scrutinize this very serious unscrupulous situation. Too many taking out permits for mother, father, daughter, son, sister, brother, cousin, nieces, and nephews. Stop the human trafficking through work permits.
Stop the remittences and let them instead buy Travelers Cheques and send off. Don’t let this people f@#% our currency up.
These people? Who benefits the most by having “these people” here and working? Your own government that’s who, to the tune of $75 Million. Get a grip.
Exactly, the last time they sent “these people” off the island, local businesses were badly affected and some had to close. Sounds & Things springs to mind
Most banks ditched travelers cheques as well, same risks as cash, no-one can see the end to end transaction so it gets regulators twitchy.
Not really ..
The average man on the street is more scrutinized than the bank consultant, Jeff Webb…Many will suffer because of one man, a result of the FIFA scandal. How can average ppl f@&$ the currency up. What foolishness.
“These people” = Caymankind moment.
“these people” meaning the US bank regulators, right?
Your gardener probably…