Aye…a Foreign Currency Problem

Submitted by Wily Coyote

Barbados has been experiencing a significant reduction in their Foreign Currency Reserves over the last several years. The reserves are presently at about 4 weeks, this should be noticeable with shortages of goods within the island, however this is not the case. One would have to ask why this is; a shortage of foreign currency should limit the purchase of imported goods and result in shortages. There are likely several reasons for this to be happening in Barbados with respect to imported goods.

  1. Concessions to large Foreign owned business, Sandals, Cost U Less, Sandy Lane etc. result in no Foreign Currency inflows from these businesses which allow these companies to operate outside currency controls, and
  2. Large retailers domiciled outside of Barbados i.e. Massy, Cave Sheppard, Sagicor etc. have the capacity to purchase their goods outside the controls of Barbados currency regulations and then import their goods into Barbados with foreign exchange immunity, and
  3. World tourism commerce is no longer transacted in the visited country, i.e. Foreign tourist buys a vacation package to Barbados in France, pays a travel agency, airline etc. in France with Euros. This French agency now pays another off Shore Company in USA which represents the accommodation provider in Barbados to their off shore account. So far none of this Foreign Currency has reached Barbados. This off shore provider who represents the Barbarian supplier will now transfer to Barbados ONLY the COST portion of the Barbadian supplier. In years past all of these transactions would have taken place in Barbados with foreign currency.

These Foreign Currency transactions do not significantly impact these Barbadian businesses; it does however directly impact all Barbados government offshore transactions as they need Foreign Currency to pay for all their goods and services. Lots of foreign currency outflows with limited inflows results in Foreign Currency Reserves being depleted and not replaced.

Pegging the Barbados currency to an individual Foreign Currency is no longer practical in this new age of world commerce. Pegging to a basket of foreign currencies maybe a solution, however this scenario is also fraught with significant risks. Barbados best solution is

  • reduce government expenditures,
  • increase productivity,
  • reduce the payroll significantly (50%), all civil service promotions done on merit,
  • eliminate 70% of the state owned enterprises,
  • privatize potentially profitable SOE’s to NOT FOR PROFIT companies/corporations,
  • drastically improve efficiencies within government,
  • have all SOE’s maintain financials and be audited annually,
  • remove life pensions for government ministers,
  • implement a MEANS TEST for all government social payouts,
  • run a balanced budget,
  • country must learn to feed themselves without relying on food imports, and
  • FLOAT the currency.

In order for the above to be implemented Barbados will need the IMF’s financial assistance and more importantly IMF DIRECTION, MONITORING, MEETING SET OUT GOALS, TIMETABLES and BIG STICK SUPERVISION. Barbados dire financial situation requires drastic adjustments to Bajan lifestyles and government operations. Barbadians must start to live within their mean.

The Featured image is a Marla Duckaran chart.

90 comments

  • Here is a related link to the Barbados Sustainable Recovery Plan being floated by government the result of a collaboration the other stakeholders have been distancing themselves if you follow the language. Click on image to read the document.

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  • millertheanunnaki

    @ Wily Coyote:
    “The reserves are presently at about 4 weeks, this should be noticeable with shortages of goods within the island, however this is not the case.”

    So we have reached, finally, the inevitable fork in the road where there must be a trade off between the elimination of conspicuously extravagant consumption of imported goods and services among Bajans and the necessity to live within thier means with the sustainable recovery of local agriculture the main beneficiary.

    The ‘noticeable shortages’ are just around the corner the same way that elections might just be around the corner or to use one of Sinckler’s catch phrases, “shortly”.

    What is a ‘most pertinent’ question to ask is what kind of financial instruments/assets is that “4 weeks” of foreign reserves made up?

    Does it include the special drawing rights (SDRs) lodged with the IMF?

    Is there any clearly enunciated and timetabled provision in the Barbados Sustainable Recovery Plan (BSRP) to borrow foreign money to shore up the foreign reserves in order to defend the peg of the Mickey Mouse Bajan dollar in the short term when the other overseas loan sharks come around circling for their pound of Bajan flesh?

    Is it in the interest of any incoming ‘alternative’ administration (and certainly in the longer-term interest of the country) if the loitering moribund administration -looking to take away all remnants of the former’ pride and industry’ of Bajans even the broken down kitchen sink- would just stop overstaying its time and testing the patience of the electorate?

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  • @David

    Recovery Plan has LOTS OF NICE WORDS AND GRAPHS, what appears to be lacking are THE DETAILS and BIG STICK SUPERVISION. The document includes a lot of forecast scenarios
    that are highly unlikely to be realised. Wily has seen numerous government documents like this in the past several years that have mounted to nothing more than “south coast toilet paper”.

    Document looks to Wily as electioneering propaganda.

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  • @Wily

    Cant disagree.

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  • Wily Coyote February 24, 2018 at 8:18 AM #

    “Document looks to Wily as electioneering propaganda.”

    Wily Coyote

    After thoroughly reading the document, I have to agree with your comments………and more so after reading the preamble clarifications to the document, issued by Charles Herbert and Toni Moore of the Private Sector Association and BWU respectively.

    As it relates to one of your (and Solutions Barbados) suggestions re: “remove life pensions for government ministers,” I am in agreement with a suggestion made by a contributor, relative to “abolishing” the political appointments of Parliamentary Secretary, which are usually “bestowed” upon certain supporters and losing candidates of political parties.

    Under the current DLP administration, a number of their losing candidates were appointed Parliamentary Secretaries, including Patrick Todd, Harcourt Husbands, Irene Sandiford-Garner and Jeptar Ince. The other losing candidates were appointed as Senators, Ambassadors or on boards (George Hudson is a board member of the newly formed insurance company to replace CLICO).

    I have a PROBLEM with ANY political party USING tax payers’ funds to “employ” candidates that lost general elections. Those candidates should return to their previous employment, seek employment or the party should support them.

    What more Harry Husbands, for example, can contribute to education than Permanent Secretary June Chandler? What legislation has Husbands played a major role in conceptulizing or enacted for the benefit of education? In other words, what significant contributions have Parliamentary Secretaries made to the development of Barbados?

    Unfortunately, we prefer to disenfranchise the “working class” from a legitimate right of employment, by “eliminating 70% of the state owned enterprises”………….. send home workers from the Transport Board, UDC, RDC, NHC etc, first………. as opposed to taking a “holistic” approach to all unnecessary government expenditure…………

    ………….and allowing the “political class” to BENEFIT FINANCIALLY at the EXPENSE of the same disenfranchised “working class.”

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  • Artax
    Since when have parasites been judged by the contributions that they are able to make to their hosts?
    Success for a parasite is the ability to get fat while milking the host – just to the point of death if necessary.
    It is this parasite-type thinking that justified the return of their 10% pay …with backpay and the general attitude of the political class…..
    Enuff said….. 🙂

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  • @Artax

    By your reasoning the hatchet should extend to the consultants as well.

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  • Artax

    I totally agree with your post.

    Dont forget the proverbial nipple sucker, Darcy Boyce who is so in tuned with feeding at the trough that he has never even given a thought that he should face the electorate. But why should he since he can get whatever he wants off the backs of the taxpayers?

    …..less we should forget the other nipple sucker Maxine McClean.

    The Senate should be abolished if it is to be kept in its current state………waste of taxpayers money on a privileged class.

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  • Dear all,

    the Barbadian problem with debt and forex is like a very heavy train or a jumbo jet. Even if you press the brakes NOW it takes ages to stop. The BLP is right that even they cannot turn the tide within one or two years. Simply look at Southern Europe: Crisis since ten years. It will take 20 years = 1 generation to turn the side. Or ask the Frustrated. He pointed out that the restructuring and selling of all these unworthy statutory corporations needs lots of money.

    Before Barbados ever returns to the path of prosperity things will get worse for a while. Devaluation, IMF, robbed ministers, emigration to Panama, Guyana etc pp. In the meantime we face more false national pride than true industry.

    However, the good thing is: Barbados already reached the stage of 8 years crisis out of 20! Only 12 more years to come.

    p.s. I endorse Wily´s list of austerity. One thing is missing: A detailed file like https://www.barbadosparliament.com/uploads/document/2ccc0057c95ca4d270bb5633d88d8d7e.pdf with all civil servants to fire. Barbados needs somebody like Stalin working personally all night to sort out the lazy laggards with an iron fist and an icy cold heart.

    Liked by 1 person

  • What is so disheartening after reading this so called plan is that this PM told his DLP loyalists in New York that he would keep the failed Stinkliar on as the Minister of Finance if he should win a third term and that Greece is failing and Stinkliar is not the minister of finance there.

    What an idiot! This man is tone deaf.

    One person asked him why would he not take over the Ministry of Finance…..the man mumble jumble some BS that all the opposition to the Stinkliar is because he went to school at the Garrison and that people also have a problem with him as PM because he went to school at Foundation.

    No Fumble, we who were schooled at Foundation are ashamed of you…….you are not representative of the values and principles of Foundation. You through your incompetence has brought this once proud country to its knees.

    I cringe everyday I traverse Barbados thinking we have regressed 15 years………..our country is in a mess as a result of the laying off of the workers of Beautify Barbados and it would seem as if the malaise has so engulfed most people that they are no longer taking pride in their surroundings…….
    ……….the country is nasty with garbage scattered all over
    ………people are crying out for buses
    ……… people are crying out at the state of the QEH
    ………some schools are falling apart under the pressure of angry children and lack of funds ………roads are literally falling apart
    ……….sewage is flowing in the streets on the south coast and they dont seem to care if or when the problem is fixed….not the DLP’s problem, it is the BLP’s fault
    ……… the economy has been downgraded 23 times…………….

    So…………What difference does it make after seven other failed plans? Another failed plan at the close of their term in office.

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  • @ Bushie

    It is this type of thinking that makes the “political class” believe the state owes them something…….and while they tell the “working class” benefits such as tertiary level education, for example, is not an entitlement…..

    ……..they have free access to state funds enabling them to afford payment of their children’s fees at universities in the UK and US.
    ++++++++++++++++++++++++++++++++++++

    David February 24, 2018 at 10:13 AM #

    “@Artax: By your reasoning the hatchet should extend to the consultants as well.”

    David BU

    YES!!…….Consultants as well!

    I had intended mentioning consultants….unfortunately, I forget to include them in my contribution.However, I remember making a previous contribution to this forum relative to government consultants.

    Recall during the first few days of becoming Prime Minister, David Thompson severely criticize the number of consultants that were appointed under the previous Arthur administration and presented a list of those person and the associated fees.

    However, after the “hue and cry,” Thompson proceeded to replace a number of those “BLP consultants” with DLP appointees. For example:

    Cranston Browne replaced Mark Williams as “Special events co-ordinator” in the Prime Minister’s Office;

    Hugh Foster was appointed as consultant to the Tourism Ministry;

    Undene Whitaker replaced Hamilton Lashley as government’s “Advisor on Poverty Eradication;”

    Patrick Gollop was a consultant as the Transport Board;

    Peter Wickham was CBC’s resident consultant and political analyst and replaced Sidney Simmons as CBC’s lone “talk show” moderator;

    And as recent as 2016, Guyson Mayers received a $300,000 consultancy “pick” to “oversee the National Risk Assessment and Mutual Evaluation Exercise of the Anti-Money Laundering and Counter Financing of Terrorism Regime of Barbados.”

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  • PoorPeacefulandPolitePensioner

    Barbados might end up having to issue a crypto-currency backed by breadfruit !! It will come to this if we don’t halt the leakage of US dollars caused by the extravagant consumer spending habits of certain sectors of the population. It would behove policymakers to raise taxes on petroleum products and motor vehicle imports which would reduce the hemorrhaging foreign exchange as well as close the fiscal deficit.

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  • Prodigal,

    “that Greece is failing and Stinkliar is not the minister of finance there”. Greece is failing because they have NOT their own currency anymore. They sold national sovereignty 18 years ago for the EUR. Now Angela M from Dark Iron Land is commanding the fate of all formerly free lands of Europe. Like Sauron in Lord of the Rings. No independent fiscal policy anymore but commands from Berlin.

    And what is Barbados doing??? Exactly the same. The peg is a unileratal accession to the USD zone. Nothing else. Barbados has no independent fiscal policy. Whatever the men and women in charge in NYC and Washington do, Barbados must follow.

    Liked by 1 person

  • The justification for having a peg of 2 to 1 Barbados dollars to the US$ was to take the risk of short term currency fluctuations out of the equation for the small island economy that Barbados has. The assumption when a peg is set has to be that GDP and money supply printed will maintain a reasonably constant ratio to that existing at the time the peg is set.

    In Barbados the ratio has got way out of wack. Simply too much money being printed which ends up to a great extent being spent on imports that have to be paid for in US$. Add this to the problem of leaking FX caused by off shore billing systems etc and one can conclude there needs to be some massive changes in the way money supply and fx inputs are controlled.

    Liked by 1 person

  • According to the CBB reporting the monetary base is approaching 8:1.

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  • After devaluation to 1:8: A discount of 75 % for international investors on their local debts in BBD. A profit higher than slavery and Maloney´s ops together. The earners of local currency pay, the international investors win.

    Thank you Chris Sinckler! Maybe there is a job left for you at Credit Suisse or Goldmine Sucks.

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  • I think this government or the next should do as Tom Adams did and banned the importation of certain items into this country like cars for a couple of months.

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  • Tron February 24, 2018 at 11:23 AM #

    Is this a serious contribution, or just being provocative?

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  • Pingback: Aye…a Foreign Currency Problem

  • @David

    The CBB evaluation of 8:1, I suspect is several months out of date. Marla Dukharan was estimating this last spring(2017) based on Barbados currency in circulation to debt levels. We all know that the currency printing machine is fully maintained and in operation continuously for the past year. I suspect thus ratio is now closer to 10:1 If not greater.

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  • Hal,

    Irony, sarcasm – and a prediction what will happen.

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  • Wily,

    “free floating” will mean free falling currency during the first years down to 1 USD = 10 BBD.

    We will see lots of politicians with missing fingers where they had golden rings before. The remaining civil servants and other local inhabitants of HMP Barbados will need some gold to buy food.

    Liked by 1 person

  • @Wily

    To be fair to the government and CCBB the printing machine has slowed with the appointment of Haynes. Bear in mind the cash reserve requirement for commercial banks was increased largely as a mitigation measure.

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  • Tron February 24, 2018 at 1:07 PM #

    What I find interesting is that it is the same mind-set, the debate, with the same argument and looking for a positive outcomes every time.
    I am shocked and disappointed at the obsession with the party debate and the almost total absence of any sound economic discussion, given the oncoming general election.
    .

    Liked by 1 person

  • Central Bank is distributing false money now without holographic patches. Obviously, Haynes cannot raise the cash anymore for proper printing money. Foreign printers do not accept any BBD. Maybe Central Bank should start printing toilet paper.

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  • Wily Coyote February 24, 2018 at 1:02 PM #

    What are the fundamental issues with printing money?

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  • @Wily

    Given that tourism is the key forex earning sector the point you make about leakage- something discussed exhaustively on BU- takes on significant importance. Where is the analysis from our educated independent sources?

    Liked by 1 person

  • Talking Loud Saying Nothing

    No creative industry. No agricultural industry. No energy industry. No manufacturing industry. No “genuine” service industry of worth. A tourist industry that has reached its sell-by date. No patents. An education system that has limited value and a population of copycats with zero original ideas. Do i need to say more? Oh and too much corruption!

    What value or merit does the private sector bring to Barbados? They talk a good game but in reality they are unable to compete with foreign companies. For example, the current french owner’s of Mount Gay have highlighted how outdated the previous Bajan owners were. With regards to the public sector…………………..

    Foreign currency reserves are irrelevant if the country has little of value to offer the world.

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  • Talking Loud Saying Nothing February 24, 2018 at 1:54 PM #

    Spot on, but this is not what Bajans want to hear. They want to believe they punch above their weight. It is a nation in denial.

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  • @Tron February 24, 2018 at 12:27 PM #

    This devaluation is not the fault of international investors, however they will in dead reap the profits of inept Barbados government management.

    @Hal

    “What are the fundamental issues with printing money?”

    If you have to ask such a stupid question, with the financial shape Barbados finds itself facing, then your definitely part of the PROBLEM and not a solution. Printing money indescrimently will result in what is about to happen, serious money devaluation and severe hardship for the populace for the next decade at least.

    @David

    Yes the money machine has slowed in the last few months, however ALL THE OFFSHORE BANKS are becoming very NERVIS. If they react negatively they could easily put Barbados into immediate SOVEREIGN DEFAULT. The question is ” is the guillotine better than the firing squad, the results are the same, patient is DEAD.

    @Hal

    I agree that we are not seeing any serious/sound economic discussions.

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  • @David

    I do not know but would hope the main forex generator is not tourism as the Barbados tourist industry is not sufficiently large to generate significant forex. In years past the major forex earners were off shore banking, productivity and then tourism in that order. The off shore banking industry in David Thompson’s time produced about 58% of the forex. Now that North American and European governments have been restraining/restructuring their respective off shore regulations Barbados offshore forex generation has shrunk to less than half it was.

    If Barbados has to operate with the forex majority generated from the tourism industry a 10:1 devaluation maybe highly optomistic.

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  • Wily Coyote February 24, 2018 at 2:14 PM #

    If you have to ask such a stupid question, with the financial shape Barbados finds itself facing, then your definitely part of the PROBLEM and not a solution. Printing money indescrimently will result in what is about to happen, serious money devaluation and severe hardship for the populace for the next decade at least.(Quote)

    Forgive my stupidity, but as someone who has been calling since 2008 for Barbados to against a basket of currencies and commodities, I can understand the devaluation argument.
    But are you sure you fully understand the likely impact on the economy from an over-supply of liquidity? And, if so, that there are no mechanisms to control it? I have aired all these views on BU on a number of occasions.
    Have you been following global macro-economic policies since 2008 and if so, what is your understanding? Have you ever heard of quantitative easing? What is it?

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  • Wily Coyote February 24, 2018 at 2:28 PM #

    I agree that we are not seeing any serious/sound economic discussions.(Quote)

    What is really sad is that our academic economists have removed themselves from the public debate, either because they are contemptuous of the people, or are scared they be challenged.
    On the contrary, in developed economies, many of the world-famous economists, including Nobel Laureates, queue up to discuss the matters.
    We talk politics, not economics. To digress a bit, look at the abysmal management of the NIS and the appalling investment policies. Yet, the minister, chairman, CEO and other senior executives continue like there is nothing wrong. The people get what they deserve.

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  • @Wily

    Not sure about the offshore sector being a significant forex earner. Many years ago recall a conversation with the late Tony Johnson, former head of the BSE and economist by training, that Barbados had no scientific way of measuring the forex/revenues generated by that sector. You are saying this state of affair has changed?

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  • millertheanunnaki

    @ Wily Coyote February 24, 2018 at 2:14 PM
    “@Hal
    “What are the fundamental issues with printing money?”
    If you have to ask such a stupid question, with the financial shape Barbados finds itself facing, then your definitely part of the PROBLEM and not a solution. Printing money indescrimently will result in what is about to happen, serious money devaluation and severe hardship for the populace for the next decade at least.”

    Why are you taken aback by such a comment from the erudite Hal?

    He is the same guy who has argued overtime on BU that the holding of foreign reserves is a waste of resources.

    Mark you, the Bajan dollar is certainly not fiat currency hence its pegging to the greenback the currency of a country whose foreign reserves holdings are in excess of US$100 million (excluding gold) but significantly less than China who tops the FX holding chart.

    If there are no forex reserves where would the country Barbados get the money to invest in much needed infrastructural development to improve its economic earning capacity and engage in social modernization like proper housing and the much needed urban renewal programme, a pet project of the same Hal A?

    Borrow it on the international markets based on its current financial junkyard status?

    There are no natural tradable resources like oil, gold, diamonds, rare metals like titanium and large tracts of arable land to feed the Chinese.

    What other collateral can Barbados put up other than a dose of ‘sound confidence’ in its promise to repay as demonstrated by its ability to save something up for a rainy forex day?

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  • @millertheanunnaki February 24, 2018 at 3:34 PM #

    I know Hal has/is always saying Barbados dies not need FOREX reserves and it’s a waste of money. Hal is not clear in his philosophy how Barbados can pay it’s foregin obligations, in coconuts, borrowed money(which no body will loan them), barter goods(oh yes Barbados has few goods to barter) etc. In this world economy the GREEN BACK and a few other world currencies ARE widely acceptable for inter country loans and trades. Unfortunately Barbados currency dies not measure up, even though it’s pegged to the GREEN BACK.

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  • I can confirm for the offshore financial sector that there are by far less deals, trusts and captives than 10 years ago.

    Suppose you are an international investor. Ask yourself a simple question: Would you trust companies and persons from a country with 2X downgrades, where the elite has proven again and again that they mix up decimals and where judges think a bench at the supreme court is a place to eat and sleep? Or do you prefer a safe Investment in Bermudas, Luxembourg or Zurich?

    We do not know the exact numbers for forex flows, OK. However, this does not matter. At least the offshore financial sector offered high-quality jobs for academics. You do not need any education for the rest of the country: jobs as maids and cleaners in tourism industry and a public service where you become registrar at the supreme court with a 3rd rate exam.

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  • @Wily
    I think some of your proposals need more thought. We have the diagnostic and monitoring tools available, we are refusing to use them.

    Have several of these SOE’s been terribly mismanaged, or is there another reason why basic reporting escapes so many of them? SOME do provide valuable products/services worth saving, even if at a reduced level. A flat 70% reduction, is tantamount to ‘fear mongering’.

    A floating dollar could be a disaster, we cannot handle, given our current financial resources. If ‘fear’ sets in, and Bajans have a long history of fearing the worse, we could end up with triple digit inflation.

    It is one thing to preach productivity, another to achieve it. If employees have years of ingrained experience where “it doesn’t matter”, the turnaround isn’t as easy as implementing ISO. Ditto for “efficiencies”.

    The expenditure/revenue mix are related to balancing budgets, and managing them to effectively to produce results in line with forecasts.

    In conclusion, until we get to the root of the problems, willy nilly cutting and slashing, will reduce expenditures, but potentially create an impetus for a further round of emigration, and we just might lose those we would otherwise like to keep.

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  • Talking Loud Saying Nothing

    I am frustrated with these long-winded conversations. When a mother or a father are no longer capable of raising their kids then it is normal for the authorities to remove these kids from the care of their parents.

    The current crop of political parties are incapable of leading and improving the prosperity of the country. I should also add that Bajans remain ill-equipped to stand on their own two feet and are a people who have always preferred to be led.

    We need to find a surrogate – and fast! Don’t whisper it too loudly but recolonisation may be our only salvation.

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  • Wily Coyote February 24, 2018 at 3:54 PM #

    I know Hal has/is always saying Barbados dies not need FOREX reserves and it’s a waste of money……(Quote)

    I am now familiar with the Barbadian discursive habit of misinterpreting opponents arguments, either deliberately or through misunderstanding.
    Every modern nation needs foreign reserves to cover for a once in two hundred years event. The last event of this proportion that too place in Barbados was Hurricane Janet – and the nation survived.
    What I have said is that foreign reserves of Bds$1bn is a waste of money; it is like having money in a savings account while at the same time having outstanding debt.
    I have said that a much better approach would be to invest in the derivatives futures markets, which would give us an opportunity to use the Bds$1bn in more rational ways. I also appreciate that local central bankers are not necessarily expert on playing the derivatives markets, but this could be outsourced.
    Also, that approximate $10000m could be better invested for the benefit of the nation: keep $500m invested in Treasuries and bonds; $50m t0 $100m could be used t o establish a balance sheet post office bank, using the existing 18 post offices branches; and using the ret to ring fence the current NIS budget and establishing a sovereign wealth fund with a mandate to return the base rate plus.
    The major problem in the case of Barbados is sovereign debt and that depends on the contract agreements that government has signed. It can be safely argued that almost all these contracts, even with local banks, require repayment in US dollars. Blame that failure on the government’s negotiators and lawyers.
    The other indirect problem is the widespread use of the Greenback as legal tender; this should be outlawed and make it a criminal offence that any business or private individual found in possession of more than US$10000 would be prosecuted and have the money seized. ALL foreign money should have to pass through a bank or approved bureau de change.
    The orthodoxy about foreign reserves is out of sync with developments in global economic performance.
    Under Trump, the Us is retreating from the global battlefield and the dollar is losing its diplomatic power.
    The renminbi is increasingly challenging the Greenback and is increasing its influence. At present, China settles 25 per cent of its foreign debt in its own currency and has clearing banks all over the world. Even the normally conservative |Germans now include renminbis in its currency reserves. Why not Barbadians?
    In terms of over-supply of liquidity, the real threat sis from asset bubbles and inflation. We have now been targeting inflation successfully for over 30 years, and with asset bubbles this surplus cash could be removed from the economy by increasing banks’ capital reserves. There are also other tool to control inflation and asset bubbles.
    Since the 2008 banking crisis, the US, ECB, Japan, and UK have all introduced quantitative easing (printing money) of varying degrees, including the saving of the US car industry.
    RBS bank, rescued by the taxpayer, has just returned a profit for the first time since then. Northern Rock is returning to profit.
    Finally, trading is bartering; but as I have said, the Bajan should be pegged against a basket of currencies and commodities.

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  • Hal,

    Thank you for your detailed elaboration about f/x reserves.

    1) Using forex reserves for investments: Good idea. However, WHO ownes these reserves? Even MAM does not know how the reserves are made up. So it might to possible that the MoF adds the CS debt(!) to the reserves which is contrary to any accounting standards. This could explain why Barbados lost so some many millions within a few days (money paid back to CS?).

    2) Outlaw USD. The use of USD begins in the taxi at the airport. In my opinion, an efficient economy should have no barriers against foreign currencies. Any regulation means high transaction costs. Example: To wire money to London in Bim, you need a permit and to wait 2 hours in bank. In Switzerland you do this at your computer in 5 minutes. It is simply a fact that Barbadians do not trust their own currency and that they prefer foreign currencies. I even assume that all the high import duties (including the last Social Nationalist Plantation Tax) have the reverse effect of weakening the BBD since the price for imported goods is excessive. People are replacing the official ways of importing goods more and more with more efficient ways … bypassing any local currency and local duties.

    Liked by 1 person

  • @Talking Loud Saying Nothing February 24, 2018 at 4:22 PM “Don’t whisper it too loudly but recolonisation may be our only salvation.”

    Since colonization didn’t save us last time, in spite of 327 years of trying, can you please explain how it will save us this time? And will the neocolonial authorities need 327 years again this time? Or less time, or more, and if so how much more? 1,000 years perhaps? And what happens to the generations of people while the neocolonialists struggle to get it right?

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  • Barbados has plenty of smart hard working people. Why don’t we try working hard and working smart?

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  • @ Simple Simon

    You meant Barbados has a lot of idiot criminals calling themselve, Politrickians, Lawyer Liers, Corrupt Police and Judges.

    Only a fool would continue to occupy sewage paradise

    Liked by 1 person

  • @System is Broken February 24, 2018 at 9:57 PM “You meant Barbados has a lot of idiot criminals calling themselve, Politrickians, Lawyer Liers, Corrupt Police and Judges.”

    I didn’t mean them. I meant the rest of us.

    The rest of us, that is most of us, are not criminals, liers,corrupt nor tricksters.

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  • But most seem to enjoy wallowing in shit/sewage whilst suffering in silence

    Liked by 1 person

  • @ System is broken
    You meant Barbados has a lot of idiot criminals calling themselve, Politrickians, Lawyer Liers, Corrupt Police and Judges…… AND the rest are simple minded BRASS BOWLS WHO WORSHIP THEM.

    @ Simple Simon FPhD
    I didn’t mean them. I meant the rest of us.
    ++++++++++++++++++++++++++++++++++
    Explain the difference.
    The only thing worse than that lot …are the dim witted brass bowls who continue to tolerate – nay – to worship them.

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  • @ Hal
    Your position is no different from Clyde Mascoll. Mascoll argues that there is no need to hold substantial forex and that we should have pumped that money back into the economy. Of course when the reserves started to decline, he tried to make an about turn. Like so many around here , he sings according to his party.
    You will note that after two dozen down grades, the country has not gone under the ocean. The expected, and prayed for by some, catastrophic collapse has not happened. It means that our thinking about economic matters , is woefully out of line with modern economic theory, which in real terms went through the window with the growth of the Information highway, internet trading, the rapid growth of new business models and so on. The private sector that we depend on to drive our economy cannot be taken seriously because with very exceptions, they are still in the mule and cart era.
    Sinckler dont know his letft hand from his right.. On the other hand Mottley is going to rescue us with some high school document called a Covenant of Hope. We seriously in sewage street right now.

    Like

  • Tron February 24, 2018 at 8:46 PM #

    1) Using forex reserves for investments: Good idea. However, WHO owns these reserves? (Quote)

    Then we need clarity from the central bank. I know Barbados is a very secretive society, but normally most of sit will be invested in US and other Treasuries.

    2) Outlaw USD. The use of USD begins in the taxi at the airport. In my opinion, an efficient economy should have no barriers against foreign currencies. (Quote)

    Does this mean ANY currency? I cannot even spend Barbados dollars in Grenada. Barbados is simply incompetent.
    I will give an example: I have a local bank account with money paid in from London. I went to the bank and asked to withdraw money in sterling and they wanted to write that nonsense in my passport. Capital control is part of our financial DNA. That went out with the do do.

    William Skinner February 25, 2018 at 12:09 AM #

    Your position is no different from Clyde Mascoll. Mascoll argues that there is no need to hold substantial forex and that we should have pumped that money back into the economy.(Quote)

    I think Clyde is by far the most thoughtful of or public economists and is a future governor of the central bank.
    I will like the central bank to publish its models and assumptions, if not we are just urinating in the dark. All major central banks do. I this another of our little secrets.

    Like

  • @Hal Austin February 24, 2018 at 4:46 PM #

    Don’t get me wrong Hal for the critism, I fully understand and tend to agree with your approach, HOWEVER THE BIG CAVIATE I HAVE IS THE COMPETENT AUTHORITIES necessary to pull off such an operation do not function in Barbados. Your asking the same AUTHORITIES who cannot manage a NIS fund to start dealing in international complex economics, GOOD LUCK with that approach.

    Like

  • “A floating dollar could be a disaster, we cannot handle, given our current financial resources. If ‘fear’ sets in, and Bajans have a long history of fearing the worse, we could end up with triple digit inflation.”

    Northern Observer

    A floating exchange rate regime reduces the requirement of the Central Bank to hold significant amounts of FX reserves for intervention purposes, basically because there would’nt be any exchange rate target. These reserves could be used to stimulate economic growth, through infrastructural development, importation of capital goods etc.

    Running a large current account deficit may cause a “depreciation/downward pressure” of the currency, but a change in the exchange rate would rectify any balance of payments disequilibrium.

    Under a floating exchange rate regime the value of exports and imports have an impact on the demand and supply of foreign exchange and thus determine the exchange rate. As a result of a currency depreciation, exports may become cheaper, thereby increasing the demand for goods abroad (taking into consideration the price elasticity of demand and supply of exports). If demand for exports responds positively to changes in the price, then a depreciation will lead to an increase in the quantity exported and the value of exports, which improves the current account balance.

    On the other hand imports may be relatively more expensive, which leads to a decrease in the domestic demand for foreign goods (taking into consideration the price elasticity of demand for imports), which may result in a reduction of the current account deficit.

    However, in the short-term, this may not occur for various reasons and a depreciation of the exchange rate does not necessarily mean there will be an immediate improvement of the trade balance.

    I was reading working papers written by Robert Klem, entitled: “The Polish Zloty / Euro Exchange Rate under Free Float: An Econometric Investigation,” and “To what extent can central banks influence exchange rates with foreign exchange interventions? The case of Poland,” written by Michał Adam, Witold Koziński and Janusz Zieliński, in which the authors examined Poland’s decision to float the Zloty in April 2000.

    There is evidence to suggest that one of the reasons why Poland did not experience the full effects of the recent global finacial crisis, was because the depreciation of the Zloty against the Euro in 2009-2010 “helped to sustain exports at a rising rate,” which was also useful in reducing economic volatility and stimulating economic growth during the crisis.

    Under Barbados’ current economic circumstances, the uncertainty introduced by free float exchange rate regime may discourage direct foreign investment.

    Like

  • What about the advice from a visiting financial analyst last week that the central bank should hold part of its reserves in gold? It promoted a rebuttal from Jeremy Stephens that we don’t have the physical space to consider this suggestion.

    #gofigure

    Like

  • Having read the article and comments, it would be nice if all the sentiments expressed might be compiled / summarized and made available for the majority, working class population to read and understand. That way, we might all determine to immediately stop spending on items that require Forex; exercising conservation and efficiency in every sphere, such as repair of appliances, carpooling to reduce fossil fuel imports and supporting local (food and other) production. At the same time, endeavoring to produce more goods and services that attract foreign exchange, needed for locally unavailable essentials, will provide opportunities for those displaced in balancing the public sector deficit. We ALL must act NOW to save Barbados from further economic deterioration. Don’t wait on the government, nor anyone else to solve OUR problems.

    Like

  • What about the advice from a visiting financial analyst last week that the central bank should hold part of its reserves in gold? It promoted a rebuttal from Jeremy Stephens that we don’€™t have the physical space to consider this suggestion.(Quote)

    Is this a serious suggestion, or is it one because it came from a so-called visiting financial analyst? It is so silly it does not deserve serious debate.
    The modern economic crisis started when Nixon abandoned the gold standard in 1971/2. Some of us may remember the exchange rate between the Bajan and pound sterling was Bds$4.80. Days long gone.

    Liked by 1 person

  • @Artax February 25, 2018 at 12:21 PM #

    A peg or a very strong currency demand highest efficiency and productivity of the workforce. Two things missing in Barbados ever since. The Barbadian productivity is not 50 % of US productivity, but more 10-20 % due to low motivation and the hot climate.

    Look at Southern Europe: The attitude is like Bim – bribery, no action but lots of talk and low productivity. These countries can traditionally handle devaluation, but no European Deutschmark, the EUR.

    After ten years of zero growth it is time to start something new. Barbados was once the Switzerland of the Caribbean and is now behind Jamaica and Guyana and on the same level as Venezuela. No foreign investor takes Barbadian economists seriously anymore.

    However, the black elite and their white “donors” fear devaluation like the devil the holy cross: All their local assets on bank accounts will vanish with devaluation. Most Barbadians have nothing to fear. They already pay the highest prices for food and housing around the globe.

    Liked by 1 person

  • @Artax
    other places aside
    1) if floated what do you guesstimate the rate to the $US/Pound/Euro to be?
    2) A basket of goods costing the Bajan consumer $100 today, would cost $??? after the float?
    3) What are the major exports, and the impact on being ‘relatively cheaper’?

    Appreciating consumers will be forced to substitute as much local as they can, many of these require inputs which are imported. Many of the fertilizers and pesticides in agricultural use are imported, several of the components in baking are imported, etc etc

    So what might the likely rise in prices be to the Bajan consumer who earns $BDS? (Inflation)

    Like

  • Northern,

    A free float demands the abolishment of most import duties since there is no need to protect a peg anymore. The value of the BBD will regulate Imports alone.

    Imagine devaluation AND 300 % duties on imported cars. Only COW, Bizzy and Maloney could afford a car then. The rest would ride a donkey like in 100 years ago.

    Like

  • millertheanunnaki

    @ NorthernObserver February 25, 2018 at 4:28 PM
    “So what might the likely rise in prices be to the Bajan consumer who earns $BDS? (Inflation)”

    Bajan consumers would be facing the same prices in their Mickey Mouse money as Jamaicans and Guyanese face in their devalued currencies.

    No one is wishing Devaluation for devaluation sake on Bajans but that is the economic price you have to pay for being woefully uncompetitive in markets where you are a price taker and not a setter and where the alarmingly low level of productivity especially at the managerial echelons is constantly showing an inverse relationship with the cancerously high level of incompetence and corruption even at the very top.

    Just look at the level of wastage and in some cases downright misappropriation of scarce resources as outlined in the recent PAC’s report and detailed in the Auditor General’s reports over the years.

    Bajans have been living high off the hog fed on imported conspicuous consumption for far too long by borrowing other people’s foreign money.
    It’s time to take that old fat pig to fine market to see how much it is really worth on the ‘trotter’.

    “Moon does run ‘til day cetch it!”

    Like

  • Northern Observer

    Under a floating exchange rate regime market demand and supply of BD$ in the foreign exchange market would determine its equlibrium value/exchange rate. In other words, the rate of BD$ in terms of the £, US$ or € would be determined by the demand for and supply of the BD$ in the foreign exchange market.

    Like

  • @Artax
    LOL…I appreciate the mechanisms…I sought your best estimate on approx post float value?

    Like

  • All statutory reforms, all IMF assistance, all devaluation or not cannot hide the substantive issues of this island:

    1) The majority of the workforce is demotivated and not willing to work longer than 20 hours net per week.

    2) The jobs in the tourism industry are poor in monetary and quality terms and all tertiary education wasted for that.

    3) The capacity for new hotels is very limited.

    4) The offshore financial sector is weaker than ever due to external factors and bad reputation of Barbados as a prudent financial place after 2X downgrades.

    If we assume that these conditions cannot be changed, further decline of Barbados as an economy and state is inevitable.

    Like

  • Northern Observer

    “I appreciate the mechanisms……..”

    Hahahahahaha………what else did you expect from someone that does not know the difference between the stock market and the economy?

    It would be difficult to approximate post-float values/prices in the absence of certain variables, such as monetary policy (floating exchange rates monetary policy is a bit more effective at controlling prices) and the economic factors affecting the price, demand and availibility of goods and services in the market (i.e. market forces).

    I understand “where you’re coming from.” But under the circumstances we have to base our conclusions on theorectical assumptions.

    Like

  • @Artax and NO

    Is there data to support relationship between the currencies?

    Like

  • ****(under a floating exchange rate regime, monetary policy is a bit more effective at controlling prices).

    Like

  • David BU

    Do you mean, for example, between the BD$ and the US$……or countries using floating exchange rates?

    Like

  • @Artax

    The latter.

    Like

  • The reason why Barbados won´t revover:

    “He has to compete against Ipad giveaways , 300 dollar vouchers for groceries snd many other items/ handouts. This is one of the worst and most volatile areas in the world. All the crime in Barbados starts in Black Rock and environs.” (Barbados Today)

    So true. We need a grand purge for St. Michael North West. The Jamaica-Guyana of Barbados. The realm of de Kingpin of Barbados, where ministers are robbed.

    Like

  • I live where the SSA would pass religiously twice weekly during the incumbency of the Owen Arthur administration.Since this current Minister Lowe assumed stewardship of the SSA bi- monthly is more the norm so that his performance is far worse than was Brandford Taitt’s.I lament this comparison however it got worse when an errand took me into a district overseen by Sinckler.I was forced to wait upon an SSA small collector doing its rounds in an area of narrow roads.While waiting I engaged a resident as to the frequency of her refuse pickups.Regular,regular she said.The message was loud and clear.Uneven distribution of public goods and services is alive and well in the party.

    Like

  • @ Gabriel February 26, 2018 at 12:06 PM

    OSA had the ‘actual’ insight to see this lot of deceitful lying pretenders for what they really are.

    Just a bunch of low-class wild boys still loitering at the backdoor to the yard of a now fully adulterated poor-rakey parliament.

    Decent people would have accepted that they have been promoted to their level of gross incompetence and resigned even if wishing to be rehired after an extended period of proper training in the art of governance.

    Not this lot of low-class mongrels! These corrupt dirty lying pimping political bastards would rather see Barbados fall to its lowest ‘Low(e)’ before they are disgracefully removed from the taxpayers’ funded trough of beneficence which has now been turned into a cesspool of wastage and piffle from their DLP homemade contaminants.

    Like

  • fortyacresandamule

    @David. Greetings. Barbados economic conundrum continues. Reserve is now reported to be 6.5 weeks of imported, yet the parallel market for foreign exchange is almost non-existent. In most countries, a thriving black market for foreign currency would have sprung up by now ….forcing the central bank to devalue the currency.

    The government has been printing a substantial amount of money for years now, yet inflation has been very low. Also, a lot of liquidity in the banking sector, but credit expansion is modest in growth. I could go on and on.

    Like

  • @Blogmaster
    Yes and no. There is data. Today there are so many ways to peg, or float or crawl, one has to ensure the data is comparable.

    Like

  • fortyacresandamule

    After oil price crashed in 2014, a lot of oil- dependent countries with fixed-exchange rate, were forced to devalue their currency. Our caribbean neighbour, Suriname, had no choice but to devalue its pegged currency by 75%. The attendant inflation peaked at 80% two years ago.

    Like

  • fortyacresandamule

    Trinidad, operates a dirty floating system. T&T, has being experiencing a severe shortage of foreign exchange since 2015. The central bank responds by rationing the reserve. Rather than let market forces determine rate, the central bank intervenes regularly in the market to prop up the rate.

    Trinidad central bank has huge reserve on hold (US$9 billion), about 11 months of import. Plus, US($5billion) in sovreign wealth fund.

    Like

  • Fortyacress demonstrates precisely, how T&T’s managed float (aka dirty float) differs slightly from $GUY mechanism. And both are substantially different from the $JCA regime. And why comparisons are difficult.

    Like

  • @fortyacresandamule

    Good to see you about and your interventions is where the blogmaster was going.

    Like

  • I am hearing that the Crop can’t start because the GOB has used the money earmarked to pay off a court action against it.

    Don’t have all the details but don’t be surprised if you don’t see a crop this year.

    Like

  • David BU & Fortyacresandamule

    I hope you both realize that there are fundamental differences between devaluation of currency and depreciation of currency.

    “Rather than let market forces determine rate, the central bank intervenes regularly in the market to prop up the rate” is as a result of a devaluation of the TT$.

    Under a floating exchange rate system market forces determines any fluctuations in the exchange rate.

    Like

  • fortyacresandamule

    @Artax. Only a few countries in the world operate an absolute free floating currency exchange system. Most operate a hybrid system. Trinidad system is not a fully floating exchange system. If Trinidad had allowed the market to fully priced its currency, given the chronic shortage of US$ in the commercial banking system, the exchange rate would have been at least U$1/ $10TT instead of the current rate of US$1/$6.78TT .

    Like

  • fortyacresandamule

    The central bank in Trinidad, during the oil boom, amassed a war chest of US reserve, equivalent to 11 months of import. It is this build up of reserve that it has used to intervene in the market time and time again to prevent a larger slide in the exchange rate….given the chronic shortage of US$ currency in the banking system since 2014.

    Like

  • @ fortyacresandamule

    Okay, I understand….and you are correct……Trinidad is using a “managed” floating exchange rate regime, (which is basically a “middle ground” between fixed and floating exchange rates), whereby the monetary authorities (Central Bank or government) could intervene in the market from time to time to manipulate the value of the currency to achieve certain macroeconomic objectives (e.g. countercyclical monetary policies used by countries such as Singapore).

    I read that China adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. Since 1981 Singapore has been using the “managed float system,” the primary objective of which is to promote price stability as a basis for economic growth.

    Like

  • No foreign currency problem for ROCK HARD cement. a stockpile to last about 2-3 years

    Like

  • Here is what former finance minister Browne had to say about the defacto T&T floating rate.

     

    Mariano: Adjust exchange rate

    • Published on Sep 28, 2017, 10:00 pm AST
    • Updated on Sep 28, 2017, 10:04 pm AST
    • By Leah Sorias

    FORMER minister in the Ministry of Finance Mariano Browne

    Prioritise: Indera Sagewan-Alli

    FORMER minister in the Ministry of Finance Mariano Browne says he is perplexed by the Prime Minister’s statements that if the demand for foreign exchange is not curtailed the country will be forced to live with a rate determined by the forex market.

    “Essentially what he was admitting to is that the (exchange rate) is no longer floating. We are trying to control the rate. And as (economist) Dr Terrence Farrell said very clearly that’s why we have a shortage of foreign exchange,” he told the Express yesterday.

    “There are market-determined mechanisms to manage the rate environment. That was why in 1993 we took a lot of flak but the whole idea was that we put the floating exchange rate in position so that we moved away from the whole concept of devaluation at all. The talk about devaluation shouldn’t exist,” he said in a phone interview.

    On Wednesday during the “Spotlight on Trinidad and Tobago’s Financial Challenges” forum at the Hyatt Regency (Trinidad) hotel in Port of Spain, Prime Minister Dr Keith Rowley called on the country to support the “national effort as we seek to prioritise the use of our limited inflows of foreign exchange”.

    “We will not be going back to the exchange controls we had in place before 1993, but we will certainly not be using up our foreign reserves to keep the exchange rate at levels which will maximise our imports,” he said.

    Responding yesterday, Browne said as long as the demand for foreign exchange continues a shortage of currency will exist.

    “So the only thing that can change when there is a demand and supply out of balance situation, is the price.”

    He said given that the manufacturing sector exports to islands who are also facing foreign exchange shortage issues, the sector must look are creating new export markets.

    “That’s a long-term process and part of the balancing act to create new markets is to allow your goods to be more competitive,” he said.

    Browne went on: “One of the surest ways of managing demand is to adjust the prices. It might be difficult. It may cause an immediate changes in people’s circumstances but that is what is required if we have to deal with difficult circumstances.”

    Govt priorities and banking sector

    Economist Indera Sagewan-Alli questioned the Prime Minister’s suggestion that first priority be given to firms or industries that generate certain amounts of foreign exchange.

    “The challenge with what the Prime Minister is saying is that neither the Central Bank and Government is involved in the selling of forex to consumers whether it be to firms, exporters or individuals. It is the commercial banks and other commercial entities.

    “So it really begs the question as to what extent Government priorities can be translated into the priority of the commercial banking sector in how they sell the forex.”

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    Can You Guess the Story Behind Money?

    The Japanese 5 Yen coin has a hole in the middle surrounded by gears to represent industry

    In 2009, the UK made a deal with Disney to show the most popular rated princess on each 5 Pound coin

    The Zimbabwean Dollar is so weak that they actually produce a bill for $10 billion

    The U.S. 1 Dollar bill with George Washington’s face on it, is the oldest American design since 1963

    In 2008, Mexico chose to represent their Peso currency by a fish taco symbolizing Mexican authenticity

    The Euro’s symbol is represented by a Greek epsilon symbolizing the cradle of European civilization

    In 2007, the Canadian 5 Dollar bill changed its design to represent a bear having a snow fight

    The Chinese government originally wanted the Renminbi to display a boy to remind their one-child policy

    As of 2015, Las Vegas is in the process of printing their own dollar bill with a casino as the symbol

    North Korea dictator, Kim Jong-un removed his grandfather’s face from the Won bill to replace it with his

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  • fortyacresandamule

    Gulf oil countries, especially the GCC, generate huge profit in oil export because cost of production per barrel in that region is relatively cheap. As such, they have established large souvreign wealth fund from oil export. Norway is another example too. They need not worry about their currency losing value.

    However, not all oil producing countries are so fortunate. Countries like Ghana, Nigeria, Angola, Venezuela, Suriname etc have all witnessed a huge slide in their currency since the fall of the price crude . Trinidad was able to fight off a drastic slide- despite a chronic shortage in the banking system, recession, and budget deficit – by using its reserve in the central bank to prop-up its currency and drawing down from its heritage fund to help finance the budget. Trinidad has done relatively well for itself this time around to avoid the hardship of similar oil-dependent economy experiencing oil price shocks.

    Like

  • fortyacresandamule

    It is no secret that Barbados received a tiny spill-over from government levy, registration fees, and wages to workers relative to the massive inflow and outflow of the offshore financial sector. Billions in cross-border flow moves in and out of Barbados every single month.

    Like

  • Forty,

    The exchange rate on the very active second market is 2.1 – 2.2 BBD for 1 USD. Minimum exchange amount 10,000 USD. In Barbados. People in Jamaica and Guyana do not want to exchange BBD anymore.

    The BBD has no purchase power. You get for 100 BBD just 14 bottles of milk, in other CARICOM member states 40.

    Like

  • Milk is NOT sold in bottles in Barbados.

    And in any event what is a bottle? 1/2 liter? one litre? 2 litres?

    What?

    Like

  • Tetra pack of 1 liter milk is 2 to 3 BBD in other CARICOM states.

    Like

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