Get Your Facts Straight Barbados Today – The Foreign Exchange Argument

An article published in the Barbados Today  (21 July 2011) was startling more by its revelation than content. The article titled First Choice boldly asserts in its intro,  “Thanks but no thanks. That appears to be what an increasing number of businesses and individuals buying about $600 million in foreign exchange each month are telling the island’s seven commercial banks, preferring to buy their foreign cash from the Central Bank of Barbados”. It is obvious the author (SC) got it wrong.

To the credit of Barbados Today reference was made to a Central Bank Report – Central Bank Intervention in the Barbadian Foreign Exchange Market (page 46 ) which is cited as the source of the author’s revelation. BU has scoured the Central Bank report several times and is unable to find a supporting basis for Barbados Today’s conclusion. The regulatory framework which has the Central Bank as the regulator and commercial banks the financial intermediaries exist. For the author to suggest that an increasing number of business and individuals are turning to the Central Bank to buy foreign exchange is inaccurate and irresponsible journalism at its highest. What it confirms is the dearth of journalistic talent generally but specifically in the realm of financial reporting.

The Central Bank report penned by the Governor of the Central Bank, Michelle Doyle-Lowe and Mahalia Jackman more accurately concludes after a  “recent evaluation of the Central Bank’s sales and purchases of FX suggests that there may be some inefficiencies present in the Barbadian FX market, whereby banks no longer sell their daily surplus on the market” . Contrary to Barbados Today  the correct conclusion to be drawn is that the Central Bank has had to be a seller of last resort to satisfy foreign exchange demand, a position which it finds puzzling, see extract from the report:  as a last resort for sales and purchases of FX, the Central Bank must be willing to provide the full amount of FX that dealers are unable to source on the market, and only intervene in periods of excess deficits or surpluses.

The report as computer geeks would say is written in ‘clear text’ with only a smattering of economic lingo. It boggles the mind that Barbados Today which described itself as a serious media outfit when it separated itself from the social media would have presented such an erroneous interpretation of the Central Bank report. Usually BU gives Barbados Today  a ‘pass’ because it is in a  nascent stage of development. However the adage spare the rod and spoil the child comes to mind.

A careful reading of the Central Bank report gives the uncomfortable feeling that there is a pressing need for us to become more efficient in our foreign exchange management. It is after all too critical a resource to Barbados’ economic viability to be signalling the level of discomfort which the Central Bank officials seem to suggesting in the report.

The honourable thing to do is for Chief Editor Roy Morris to withdraw the article.

18 thoughts on “Get Your Facts Straight Barbados Today – The Foreign Exchange Argument

  1. I would have to agree with Barbados Today Article, it’s quite obvious that the largely Canadian controlled Barbadian financial institutions are losing confidence in Barbados’s financial stability and it’s obligations to meet future commitments. To a large extent it’s not business’s and individuals buying the foreign exchange but the Barbados Government through the NIS funds. Approximately 70% of the NIS nest egg is now loaned out to the government. Barbados Debt to GDP ratio is rivaling those now being experienced by Greece, however Barbados does not have a White Knight in the form of the European Central Bank for bailout monies.

    • @Wily Coyote

      You totally missed the point. The Barbados Today report speaks about businesses and individuals buying foreign exchange directly from the Central Bank.

      That is erroneous. foreign currency is sold through the banks or what is referred to as financial intermediaries in the report.

      The concern here is Centrral Bank’s reporting system which seems to be haywire by its own admission.

  2. @BU David.
    The link above results in a 404 error.

    “recent evaluation of the Central Bank’s sales and purchases of FX suggests that there may be some inefficiencies present in the Barbadian FX market, whereby banks no longer sell their daily surplus on the market” .

    If the banks are no longer selling, which suggests that they used to do so before. What happens to the surplus?
    Is it now being sold to the Central Bank instead of on the market?
    When was this change in policy implemented?

    The Journalistic quality of Barbados Today has been rather poor for some time now.

    • @Germain

      Thanks for the 404 headsup, corrected.

      The point you identified is valid and which led BU to conclude that there is a problem with how foreign currency holdings by banks are being reported.

      If there is a problem with reporting,it mean the Central Bank market surveillance is flawed, it means the forecasting by Central Bank of foreign currency reserves is flawed; that means the monetary and fiscal policies required for correction in the economy, which needs to be done months in advance by the Central Banks admission, will be flawed.

      It is a subject which is a little heavy but the Central Bank report authored by Dr. Worrell et al is not that difficult to follow.

  3. David

    I really find it hard to understand what is the real issue that you are faulting Barbados Today for. It seems as if it might be the 600M per month that FX buyers seem to be now purchasing from the Central Bank and the reasons BT is giving for this. But it is unclear whether or not you’re criticizing the other conclusions in the BT article about developments in FX trade in Barbados noted in the CB report.

    eg. are you saying that the below quotes from the BT example do not reflect what the Central bank has stated in its report

    “Between 2005 and 2009, the percentage of days where no sales were made to the Central Bank fluctuated between 11 per cent and 15 per cent. However, in 2010, this more than doubled; the percentage of days in which no FX was sold to Central Bank reached 30.8 per cent,” the researchers found.

    “In addition to this, the value of FX sales to the Central Bank also declined from the average daily value of $1.3 million between 2005 and 2008, to $500,000 in 2009 and $600,000 in 2010. At the same time, there has been a consistent decline in the volume and value of FX interbank trades over the last three years.” The governor and his team said these levels of trading were surprising since they “would expect that the frequency of trading in 2010 would have been higher than in 2009, which represented the height of the economic slowdown, when travel receipts and real estate inflows would have slowed”.


    It noted too that when all of the information was considered “there seems to be no excessive deterioration of dealers’ spot positions or the supply of FX, to adequately explain this lull in activity”.

    All of this meant that “given the change in the degree of market activity, related in part to the altered supply and demand for FX that has evolved in recent time and a preference to source FX from the Central Bank … the level of unpredictability of the FX market has increased”.

    “Without dependable information about the state of the FX market, the Central Bank’s forecasts of FX in the economy becomes less accurate, which in turn creates a dilemma for policy,” Worrell and company said

    Grateful if you would clarify BU’s concerns.

  4. @checkit-out

    All that you have quoted leads anybody to conclude that although the banks maintained a similar spot position Central Bank had to satisfy demand by selling forex to the dealers in the market more than in the previous year. It obviously means dealers were not trading with each other to satisfy the market even though the reporting by banks indicated there was money to satisfy demand..

    What is does not mean is that individuals and companies bought foreign currency directly from the Central Bank bypassing the dealers in the market as the BT article suggested.

  5. I think David is saying that Barbados Today gave the impression that Sam Couchie and the Duppy were buying FX from the CBB and ignoring the banks. This is erroneous as the CBB supposedly only sells to registered FX dealers. An experienced and professional Editor-in-Chief of a reputable newspaper should feel obligated to apologize for inadvertently misleading readers.

    After reading the CBB report, I am left with the following impressions:

    The CBB believes that the non-bank institutions are having a negative impact on the market.

    Either there is less FX in circulation than the CBB estimates, or there is some hoarding taking place.

    The CBB in spite of its daily monitoring of the FX market, obliged the dealer’s “preference to source FX from the Central Bank, (even in circumstances when FX was being held by other dealers in the market)”.

    An extra requirement on the Banks without improvements in the oversight capabilities of the CBB leaves the status quo intact.

    • @Germain

      Good observations, the only one BU does not agree is:

      The CBB believes that the non-bank institutions are having a negative impact on the market.

      How did you draw this conclusion because they are operating with narrower margins?

  6. the Barbados Today article had to be written by someone who knows nothing about money transfer. i don’t know if anyone goes to the central bank to do that. i know that it process thru the banks on behalf of the central bank

  7. Thanks Germain and David. It is a bit clearer now.

    Obviously BT was wrong in its intimation that “Sam Couche and the duppy” were now buying forex directly from the CB but most of the BT article remains relevant imho. Does it seem reasonable that David should thoroughly condemn BT for that mistake and suggest that BT is the worse of the worse without at least discussing what the remainder of the article suggested and which it would appear the rest of the fourth estate did not even deign to bring to the attention of the public? or was this an attempt to obfuscate the serious issues hinted at in the article?

    • @Checkit-out

      Always the conspiracy theorrist.

      Did you think Peter Wickham was obfuscating when the BT extrapolated from a few constituency polls recently to arrive that Sinckler is more popular than Stuart?

  8. David

    I admit to being somewhat of a conspiracy buff especially on matters where the jury is still out or that the conspiracies have been proven. but, re. the above I must say; What conspiracy theory what? Do I hint at anything resembling a conspiracy above? Seems like I hit a raw nerve.

    Re. Peter wickham and the BT sinckler-stuart popularity poll, “obfuscating” may not be the right word. Being himself might be more apt. But do’nt you think that BT might have been right in this particular case? Why not put up another BU poll to test that idea?

  9. @ David

    Your correct about who buys & sells foreign exchange directly, however the amount of flow of this FX is largely determined by business’s and individuals requirements through the banking system.

    As the IMF has stated on numerous occasions the Entire Barbadian Statistical reporting system, Central bank included, is “dated” and “suspect” as to it’s accuracies. Davids point that “Central Bank market surveillance is flawed” is a logical conclusion. As the saying goes GARBAGE IN – GARBAGE Out. This is a critical issue for CBB and the government of Barbados as these statistics are used to implement future government policies to insure financial stability.

    • @Wily Coyote


      If Barbados is serious about defending the parity of the dollar then surveillance becomes more critical in the prevailing environment.


      Barbados Today cut and pasted key statements from a report which is available to the public without making any insightful analysis.

      The one instance it drew a conclusion from the report, it was erroneous.

      Criticism of BT is not to suggest it does not have a contribution to make, to the contrary but wrong is wrong.

  10. @David,
    Sorry for taking so long to respond, but I now get back.

    “How did you draw this conclusion because they are operating with narrower margins?”
    It is forcing the CBB to adjust rates that were in place since 1984.

    My understanding of the report is that banks resort to buying from the CBB because other players are refusing to sell any excess they might have accumulated, creating an artificial shortage and even if they are willing to sell, it makes no sense buying because the “wholesale” price is very close to the “retail” price set by the price control department.

    “Considerations for Improving Interbank Activity
    Traditionally, one of the most common precursors to FX market failures is a high exchange spread (i.e. the price at which the Central Bank sells foreign exchange relative to the price at which it buys). The established margin for US dollars at the Central Bank of Barbados has been historically wide, but remained within the limits as prescribed by the IMF.
    Since 1984, the spread between the buying rate and the selling rate for US telegraphic transfers has been 0.03 75. While the high spread has not been an issue in the past, the introduction of new players (non-bank FX dealers), who operate with very low buy-sell margins, and more active treasury management by established dealers, have added a new dynamic to the FX market. Particularly, over the last few years there has been increased competition among authorised dealers that has resulted in the US selling rate on the market fluctuating between USD/BDS$2.0175 and USD/BDS$2.0275. One would expect that as a result of active daily buying and selling of FX, the market would tend to a mid-rate of US/BDS$2.016, based on the Central Bank’s current margins on USD. However, several new players have been operating with buy-sell margins that are narrower, not just than their competitors’, but also narrower than the Central Bank’s spread.
    A paramount consideration for FX dealers is the cost of trading FX; the right cost incentive is vital to spurring FX activity in the interbank market. The incentive system must take account of the cost of obtaining FX from the Central Bank to cover future customer payments and the level of competition among dealers, in being able to obtain future FX requirement from the market, at a reasonable cost.
    As a first step to improving the incentive structure with a view to restoring active interbank FX trading, it is recommended that the Central Bank reduce its margin on the sale of FX to dealers from 3 1/2 cents (BDS) to 2 1/2 cents, and introduce an additional requirement that dealers sell to the Central Bank 5 percent of the amount they purchase from the public.”

    I always had a seat at the back of the class so not comprehending is nothing new, but that seemed like a negative to me. 😀

  11. The established margin for US dollars at the Central Bank of Barbados has been historically wide

    If that is called wide what is do refer to the canada,uk , euro ones as canyons ?

    • Don’t pretend to know the finer detail about forex trading but what is coming out of the Central Bank report speaks to much needed reform to the reporting.

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