Walter Blackman’s Perspective on Devaluation and ‘Printing Money’

Walter Blackman - Actuary and Social Commentator

Walter Blackman – Actuary and Social Commentator

As a result of the perilous state of the Barbados economy, accentuated by a recent 3 notch downgrade by Moody’s and a follow up visit in June by the IMF after a worrying Article IV Consultation in December 2013, the conversation about devaluation and management of government debt has become a topic of national interest. In the public’s interest BU highlights Walter Blackman’s perspective on the two issues which he shared on another blog.


Hants – Currently $1 Canadian = $1.84 bds. Cheffette all chicken roti cost $5.50 Canadian. So after a 5 to 1 devaluation the roti will still cost $5.50 Canadian but $60 Barbados. Please correct me if I am wrong.

Walter Blackman – Hants please allow me to reconstruct your question correctly. A Cheffette roti currently costs BDS$10.12. Since Canadian $1 = BDS$1.84, it would take Can$5.50 to purchase the roti. If the exchange rate were changed to Canadian $1 = BDS$5, the same roti that sells for BDS$10.12 would now cost only Canadian$2.02. In short, a devaluation would cause a product manufactured or produced in Barbados to become cheaper to Canadians. The economic argument usually made is that this cheaper roti price would induce Canadians to buy so much more rotis that Barbados would ultimately earn more FOREX selling the roti at $CAN 2.02 rather than at $CAN$5.50.

Hants – So a roti could still sell for $10.25 bds but a box of Kellogg’s cornflakes

Walter Blackman – Yes. The roti that cost BDS$10.25 before the valuation, would continue to cost BDS$10.25..using the ceteris paribus (all things being equal) assumption.

Let us assume that a box of Kellogg’s corn flakes was produced in Canada and sold for CAN$24. When the exchange rate was $1 Canadian = $1.84 bds, the box would have cost BDS$44.16. If the exchange rate were changed to CAN$1 = BDS$5, the price of that same box of Kellogg’s corn flakes would skyrocket from BDS$44.16 to BDS$120.

The economic argument is that the devaluation would make Canadian products more expensive for Barbadians and would have a dampening effect on Canadian exports to Barbados. In other words, Barbadians would import less Canadian goods, and this would reduce our national usage of Canadian FOREX. The economic argument, of course is highly theoretical. The social problems generated by a devaluation, on the other hand, are very real. if almost everything you use and eat came from overseas, and a policy was implemented to choke off this external supply, what do you think would happen?

Lawson – Walter how does that effect real estate, should I wait to buy , will I need to join the Kendal shooting club and buy a glock to get my corn flakes home. Riots, starvation, diseases, crimes?

Walter Blackman – As long as you are sure that a devaluation is inevitable, and you have foreign currency, you should wait. If you have Canadian dollars, a devaluation of the $BDS relative to the CAN$ will make everything in Barbados, including real estate, cheaper. In fact, if the devaluation is deep enough, a multinational corporation might be able to offer an attractive price to purchase the whole island!

On a more serious note, you are on the right track when you started talking about the need to protect yourself and your assets from the social fallout of a

Bush Tea – Hants has a point.devaluation. How long do you think Cheffette will keep the BDS $10.25 price? Practically EVERYTHING in that roti is imported or contains high percentage of imported inputs…

Walter Blackman – Bush Tea, Your point is well taken. Similar to Einstein’s equations and his law of relativity that broke down in the face of a black hole, economic arguments for a devaluation would break down in the face of a small, open, fragile, corrupt, mismanaged country like Barbados. Economic theory will quickly give way to social chaos. Immense pain and suffering will result.

Let me give you an example.

Pretend for one moment that Barbados did not have one cent of FOREX, so no roti ingredients could be imported. Your local cows and your local chickens will suddenly loom large in value, and as the current practice suggests, they will be stolen and sold without any questions being asked by the buyer. The thieves would be quite willing to kill you, the owner, to defend their cows and chickens which they did not raise.

This situation would in turn drive you to the point where you and many others in your predicament would decide to purchase one of the many thousands of guns on the island, with a view to maiming or killing your Barbadian brothers and sisters. A downward social spiral would be set in motion.

Added to the social chaos would be an economic double whammy that would develop to bite you in your backside. Because of the devaluation, you would now have an excessive amount of Barbados dollars chasing few locally produced goods – the classic definition of inflation. Add high unemployment into the mix, and you have a stagflation nightmare. It would take us years and years to wake.

Barbados Underground – So Walter to follow your explanation, will the printing of money ultimately have the same effect?”up from such an awful dream.

Walter Blackman – The printing of money creates its own problems, and if it continues unabated, it can trigger a devaluation. I suspect that many Barbadians have heard about “printing money” but they don’t quite grasp the concept and its inherent dangers. Please allow me the opportunity to get the concept of printing money across by using a simplified example.

Let us assume that there are 300,000 Barbadians, and each Barbadian must purchase a can of food every day to survive. The only product sold in Barbados is this canned food and there are only 300,000 cans on this particular day. For convenience, let us also assume that our total money supply amounts to $3 million, and the price of a can of food is $10.

Suddenly, the government decides that it wants its friends and members of the political class to have , not one can of today , but an additional hundred thousand cans. The additional 100,000 cans of food of course cost $1 million at current prices. Government doesn’t have the money, so it orders the Central Bank to make the money available now, and promises to repay the Central Bank later.

The government has now imposed a new monetary policy on the Central Bank. In this simple example, The Governor of the Central Bank is forced to increase the money supply of Barbados from $3 million to $4 million. Note carefully that no more cans of food have been produced, so we now have $4 million dollars chasing $3 million worth of goods. Prices will rise and inflation will set in before this new situation settles on an ultimate price for a can of food.

In the real world, the resulting inflation will wreak economic havoc. Businesses will have to spend more on operating costs, and will have less to save or invest. Interest rates will rise. There is an inverse relationship between interest rates and bond prices. So people who are holding government bonds (which are now paying relatively low returns) would now receive low prices if they try to sell the bonds. Investors would not be interested in lending their money to the government, or even investing in the country. More than half of the extra million dollars put into the economy by the Central Bank would be used to purchase foreign goods, and this will put a tremendous strain on our FOREX. The country would eventually come face to face with the threat of a devaluation.

135 thoughts on “Walter Blackman’s Perspective on Devaluation and ‘Printing Money’

  1. are-we-there-yet? | June 13, 2014 at 9:08 AM |
    Could you explain what happens with Credit Cards in the event of a significant devaluation.

    are-we-there-yet? | June 13, 2014 at 9:18 AM |
    ….. and Walter;
    How about formal loans from credit institutions?

    Devaluation affects the financial relationship between 2 currencies. So any transaction that does not involve 2 currencies can be left out of the discussion. For example, if you have a credit card that calls for payments in US$ and you have a source of US$ from which you make those payments, then your credit card relationship will be untouched by a devaluation. The same thing holds true if you have a loan from a credit union that calls for payment in $BDS and you work for BDS$.

    For transactions that involve 2 currencies (e.g US$ & BDS$), here is a general rule of thumb:
    If you are the lender, make sure the repayments are directly linked to the currency you expect to appreciate.
    If you are the borrower, make sure the repayments are directly linked to the currency you expect to depreciate.

    Let us use a ‘brother-eat-brother’ scenario to demonstrate the idea.

    Brother A lives in New York. He has a US$ credit card. He also has a bank account in Barbados that holds only BDS$. His monthly bills in Barbados amount to BDS$200.

    Brother B visits NY and purchases US$1200 in goods. He asks Brother A to use his US$ credit card to pay for the goods. Brother A obliges.

    Brother A is the lender in this transaction, and given the economic performance of Barbados, he expects the US$ to appreciate relative to the BDS$. So he shrewdly tells his brother, “You can repay me the US$1200 at the rate of US$100 per month for the next 12 months. You can deposit the monthly payments in my bank account in Barbados.”

    In month 1, Brother B puts BDS$200 in his Brother’s account in Barbados. The BDS$200 is used to pay Brother A’s monthly bills. Everyone is happy with the arrangement.

    In month 2, a devaluation occurs. Now, US$1 = BDS$4.
    Brother B now has to put BDS$400 in his brother’s account in Barbados. Out of that, only BDS$200 is used to pay Brother A’s monthly bills (payments in BDS$ are unaffected by the devaluation) and the other BDS$200 sits in the bank account as pure profit for Brother A. Anger and resentment begin to grow within the heart of Brother B.

  2. whatever the outcome //the private sector role is necessary and important in helping to get the country out of the grips of slow growth ,,through investment in capital projects that are presently streamlined,,no sense in having divided political difference such policies can’t work and would never work,,,there is a real sense of urgency which must be addressed,,which should result in more action and less talk,,,

  3. The PDC will continue to write about the intellectual rubbish falling within this blog.

    There are no relationships that exist between currencies, other than between themselves in particular and in physical ways (the physical ways we did not want to write about but we had to because it is so obvious when they touch).

    There are no relationships that exist between monies (coins and bills), other than as we referenced just now.

    So it is absolute intellectual rubbish to write otherwise.



    Walter Blackman – the problems are the DBLP crooks, you need to study them , long ass talking ,
    lets see you put names to the crimes,piss on the fire not the smoke

  5. Walter;

    Thanks for the explanation. I suspect that most of the BU family will be primarily concerned about one-currency transactions and your explanation is good news for us.

    • Brassbowls?

      Paul blasts wing imports

      Paul’s Enterprises Limited employees loading the boxes of imported chicken wings from a container to be taken to cold storage. Inset, chief executive officer of the Barbados Agricultural Society, James Paul. (Pictures by Lennox Devonish.)

      Sat, June 14, 2014 – 12:09 AM

      THE CONTROVERSIAL imported chicken wings have landed and they have Barbados Agricultural Society (BAS) chief executive officer James Paul upset enough to castigate both the Barbados Agricultural and Development Management Corporation (BADMC) and Paul’s Enterprises Limited (PEL).

      Acting on a tip-off, Paul was in Salters, St George, at Tropic Ice where customs officials were supervising the movement of the boxes of the wings by PEL personnel, which had arrived last Saturday.

      “I have nothing against people trying to make business in this country, but my concern is that we should not do it in a way that compromises each other. This action really robs a poor family who are relying on keeping chickens from making the kind of revenue they have to make, especially in these hard times,” he charged.

      Paul said he saw no reason for the wings to be imported in light of how the local chicken industry was improving.

      Please read the full story in today’s SATURDAY SUN, or in the eNATION edition.

  6. There are no relationships that exist between currencies, other than between themselves in particular and in physical ways (the physical ways we did not want to write about but we had to because it is so obvious when they touch).
    LOL……when they touch?!?!
    This man mad as shiite then!!!
    …there are no relationships between your brain cells Boss….

  7. The PDC will continue to write about the intellectual rubbish that is falling within this blog.

    Just as it is impossible to use a currency/money to pay for a resource, good or service, it is impossible to use a currency/money to pay for the use of another currency/money (commodity), or impossible to use a credit or debit card, check to pay for a resource, good, or service or the use of currency/money.


  8. @ Hunts

    “Barbados will not become a failed state.”

    I’ve got a REAL Fiver($US) that says you wrong.

    I hope I’m wrong but all the historical indicators say otherwise

  9. The private sector is a critical component in addressing the development challenges through its contributions in many areas, including growth, jobs, poverty reduction, service delivery, food security, climate change mitigation, environmental sustainability, and contributions to taxes.
    can one truly state that such challenges have been fully considered and address by the private sector in carribbean countries in partnership with govts over the years or only thought of by the private sector in the same ole galvanized lip service approach,,,,these are real problems which are epidemic within small nation economies and are dependent through action and interaction by both govt and private sector .leaving such problems solely alone for govt becomes burdensome

  10. defines to pay as: to give (money) in exchange for goods or services. defines to pay as: to give over (a certain amount of money) in exchange for something.

    We use these definitions to show how sadly mistaken the authors of the same definitions have been in defining circumstances where certain individuals – in Barbados or in many other parts of this world – are passing money from themselves to certain others, and at the same time as they are doing so, or before or later, and this is under given contractual arrangements, they are too receiving resources, commodities from the certain others they are giving the monies to, or they are using services provided by the certain others they are giving these said monies to.

    A sound and proper reading by any serious thinkers of these said circumstances would show that any attempts by any persons (as those authors of the definitions have done) to link the monies that these persons are actually passing from themselves to certain others, to the resources, commodities that they are actually receiving from the certain others, or to the services that they are using and that provided by the certain others, shall surely fail, for these things do not connect and, worse, CANNOT be used to cancel out another, as the existence of one does not depend on the existence of the other.

    Well, what this very terrible misuse of much of the language (expressing psychologies unconnected to money) by persons who have been using it under this blog fundamentally shows or points to is the totally improper use by them and many others of (the two main purposes of) money itself.

    Just imagine the utter foolishness that an amount of BDS Money is used to pay an amount of bills (described situation).

    This written description has NO grounding whatsoever in the logic or human behaviour of the particular situation or circumstance identified/presupposed!!

    Again, there is and will be NO CONNECTION between the money and the amount of the bills or the bills themselves.

    In such a situation, as described by the PDC though, or furthermore in such an actual circumstance where resources, goods are passed from one to the other, or where some one uses the services of another, and it is within the embrace of the same contractual arrangements, it is that money is REPRESENTING a cost to the remuneration of one, as against it REPRESENTING a remuneration benefit to another.


  11. @ ac | June 15, 2014 at 8:02 AM |

    Ac, what are you on about? What message(s) are you trying to convey?

    Are you no longer the rabid fork-tongued anti-privatization snake?
    A vibrant private sector cannot exist in a place like Barbados as long as the State is a major player in the provision of goods and services instead of being the ‘minimalist-type’ regulator and buyer of such private-sector supplied goods and services.
    The more involved the government becomes in the direct provision of goods and services to the general public the more the parasitic private sector becomes dependent on the State for supply contracts leading to corruption among greedy politicians and unpatriotic bureaucrats involved in the process.

  12. that is from millers yardfowl handbook,,but the handbook of well known expert’s touted economist who have done interviews and studies about the interaction of the private sector and its role in economic development through out the carribbean says different with accuracy and pinpoint .precision…..pointing out the influence and control the sector have in political policies ,,,but showing little effort in the economic matters outside there own terrain ,

  13. I am probably wrong,but I seem to recall reading there are 9 million Haitians.
    Anyway let agree there is a hell, of a lot.
    They are all alive and kicking, but at what level??
    Ask me another I ent Haitian and have no ambition to be one.
    Haitaian by name ,or , Haitian by Circumstance??!!
    Now there a question?
    Barbados- Haiti
    Certain parralels spring to mind.

    Incompetent and ignorant,corrupt government.
    Arrogance of the people ,disregards of natural Justice.
    Theft of public funds on a grand scale
    Continued employment of obviously completely corrupt Public Officers.
    Total disregard for law and order.
    Theft of workers pension and benefits.
    Decay of infastructure ignored.
    Rife corruption,thro out the entire system of governance.
    Incompetent Ministers elected on the basis of favour.
    Basic food staples rocketing in price.
    Wages and employment falling.

    This is ONLY BARBADOS I am referring to.

    The Haitian currency is no more than a farce.

    Where do you see the Barbados $ heading.

    Barbados is drowning in economic insecurity,floundering, clutching at straws.
    Non.government is sucking us down into the quagmire.
    Are we to become ” BAITIANS”?
    By circumstances?
    Is that the Bajun future.?
    If we study the path of the US$ .
    We see a downward spiral, as we are pegged to the US$ we must have ALREADY have HAD a devaluation,
    against many other currency and more particularly against the currencies of most of our main tourist supplies. IE £ was in the 1.40’s to the U$$ now is in the high 1.60’s.
    Fait acompli devaluation!
    So when we look at the fact we HAVE had already this devaluation and are still in trouble a further devaluation must be the straw that “breaks the camels back”
    When the person who sits in the PM chair, replies like a recalcitrant schoolchild,to the words of the international agency that can break him and Barbados at the same stroke.
    I do not see a salvation for us.
    BUT I DO recognise the Dictatorial brainset of someone sucked into the “invincibilty mode” of a quasi dicatator.
    A big TURD in a smallpot . Girded in Invisibility of arrogant ignorance.
    I feel this arrogant quasi Dictator functions on the premise that”What the eye does not see the HEART does not grieve over”
    or maybe
    “OUT of SIGHT out of MIND”.
    Old Bajun saying
    “you can buy land and hide , but you cant buy land ,farm it and hide”
    He “FARMS” Barbados pretty well i should say by his portly frame , sharp suits and other “well off” accoutrements and general look of carefree well being.
    “Like it or lump it”!! Someone once said.
    Beware!! Bajuns DO NOT forgive or forget easily

  14. Too Long in Slavery,
    More Slavery

    Starving Brits stole Third World resources & built fortunes
    Wealth disparity in Foreign exchange with third world is no accident
    Slaves were brought to Caribbean to do their very necessary job
    now work is over they want to know when will they receive their return
    Took 3.4million away & stole them from Africa not officially but stole them anyway

  15. Gold is up, urging all thugs
    Trade me y’all chains for cash and splurge it on drugs
    A more secure investment
    Food and water, a couple of gallons for your cutest daughter
    And thank him as a Yankee fellow southerner
    Don’t forget the general rank, ‘ello guv’nor

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