est. 2007

Barbados Underground

Bringing News and Opinions to the People

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…

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 responses to “Aye…a Foreign Currency Problem”

  1. Hal Austin Avatar
    Hal Austin

    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.

  2. Wily Coyote Avatar
    Wily Coyote

    @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.

  3. Artax Avatar
    Artax

    “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.

  4. David Avatar
    David

    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

  5. Andrew Simpson Avatar
    Andrew Simpson

    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.

  6. Hal Austin Avatar
    Hal Austin

    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.

  7. Tron Avatar
    Tron

    @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.

  8. NorthernObserver Avatar
    NorthernObserver

    @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)

  9. Tron Avatar
    Tron

    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.

  10. millertheanunnaki Avatar
    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!”

  11. Artax Avatar
    Artax

    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.

  12. NorthernObserver Avatar
    NorthernObserver

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

  13. Tron Avatar
    Tron

    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.

  14. Artax Avatar
    Artax

    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.

  15. David Avatar
    David

    @Artax and NO

    Is there data to support relationship between the currencies?

  16. Artax Avatar
    Artax

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

  17. Artax Avatar
    Artax

    David BU

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

  18. David Avatar
    David

    @Artax

    The latter.

  19. Tron Avatar
    Tron

    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.

  20. Gabriel Avatar
    Gabriel

    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.

  21. millertheanunnaki Avatar
    millertheanunnaki

    @ 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.

  22. fortyacresandamule Avatar
    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.

  23. NorthernObserver Avatar
    NorthernObserver

    @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.

  24. fortyacresandamule Avatar
    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.

  25. fortyacresandamule Avatar
    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.

  26. NorthernObserver Avatar
    NorthernObserver

    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.

  27. David Avatar
    David

    @fortyacresandamule

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

  28. John Avatar
    John

    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.

  29. Artax Avatar
    Artax

    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.

  30. fortyacresandamule Avatar
    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 .

  31. fortyacresandamule Avatar
    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.

  32. Artax Avatar
    Artax

    @ 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.

  33. Watchman Avatar
    Watchman

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

  34. David Avatar
    David

    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.”

    CHALLENGE

    YOUR FRIENDS

    0/10

    SCORE

    You Scored a Fair

    6/10

    Thank you for playing !

    START NEXT QUIZ

    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

  35. fortyacresandamule Avatar
    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.

  36. fortyacresandamule Avatar
    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.

  37. Tron Avatar
    Tron

    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.

  38. Dr. Simple Simon Avatar
    Dr. Simple Simon

    Milk is NOT sold in bottles in Barbados.

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

    What?

  39. Tron Avatar
    Tron

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

  40. hisservicesoffered Avatar
    hisservicesoffered

    https://myminespot.blogspot.com/

Older Comments
1 2

The blogmaster invites you to join the discussion.

Trending

Discover more from Barbados Underground

Subscribe now to keep reading and get access to the full archive.

Continue reading