Submitted by Danny Gill

The economic historians tell us that around 5,000 years ago, the Egyptians (who by the way were Black people) were using gold and silver as their currency. However, as the pieces of gold and silver were odd sizes and weight, they could not be considered as money. These economic historians indicated that the Egyptians needed to satisfy certain criteria for their currency to be considered money.

Currencies are defined as: Portable (they can be carried around); Durable (they will last long); Divisible (they can be broken down into units or dollars etc); Fungible (they are interchangeable. A dollar is a dollar where ever it is); and they are media of exchange. On the other hand, Money is defined similarly except that it has a store of value over a long time. For instance, most currencies can be devalued, but money in the form of gold and silver always retain its value.

The Barbados Dollar is pegged to the US Dollar at an exchange rate which fluctuates slightly. In other words, the Barbados Dollar is only as strong as its anchor the US Dollar. When the US Dollar first emerged, each unit or dollar bill was backed by its unit worth of gold.

That is, a twenty US Dollar Bill was worth a similar value of gold dollar coins which were kept or preserved in the Federal Reserve. The currency or dollar bill was only a receipt or claim ticket which on presentation at a Bank would result in the claimant receiving twenty gold dollar coins.

During and the World Wars, things changed; the US Government was almost the sole provider of goods and services to the warring countries and as a result, more US Dollars saturated these countries than the supposed gold that should have been in the Federal Reserve. Countries were paying for their goods and services in gold and the US Government was printing more and more dollar bills to satisfy the market. Things changed around the late sixties when the Government of France insisted and called for its worth of gold in proportion to the US Dollars it had. This caused a run on the Federal Reserve and it lost one third of its value of gold, as other countries followed suit. The US Government had been indulging in deficit spending and debasing the value of its dollar, something not unheard of in our modern times. In fact by 1971, President “I am not a crook” Nixon totally removed the US Dollar from the Gold Exchange Standard. Thus, paving the way for the numerous bail outs and financial packages supported by Presidents Bush and Obama.

In short, the economic historians are accusing Washington of abandoning the solid, tried and true backing of its currency by gold to the current Fiat Currency which is backed by the US Government’s good will and IOU’s in the form of Treasury Bills and other instruments. Not only the US Government but most other Governments worldwide have chosen this course of financial action as the Fiat Currency process allows government to print money and engage in deficit spending without batting a sweat. Yet, this flies fully into the economic adage which insists that currencies do not store value (like precious metals) but lose their value even further when governments print money. It is also flies in the face of Milton Friedman’s definition of Inflation which he said is the expansion of the currency supply which in turn causes prices to rise. To date the countries guilty of this practice are, to name a few: China, Singapore, South Africa and India. The top economists here would have to say whether Barbados is also guilty of this practice.

Now if what the economic historians are saying is true, then most currencies are useless pieces of paper. The world could also be sitting on a paper currency bubble which is about to burst. It also means that by extension the Barbados Dollar could be a useless piece of paper. Why then are we defending it so mightily?