US Dollars Needed, Not Barbados Dollar Savings in Order to Invest

Reproduced with permission, the full text of Dr. Delisle Worrell – former Governor of the Central Bank of Barbados – October 2019 newsletter:

One often hears the comment that there are hundreds of millions of dollars of idle funds at commercial banks that ought to be directed to investment projects to create employment and grow our economy. However, we need always to bear in mind that every investment project is going need to computers, cell phones, supplies and equipment that have to be purchased from abroad, in US dollars. A basic feature of economies as small as Barbados is that all business investment, from hairdressers to supermarkets to power plants, has to be financed mainly in foreign currency, not domestic money. That is because the domestic currency cannot be used to acquire essential inputs from abroad, such as equipment, vehicles, materials, fuels and other inputs. This is true whether the project is large or small, private or public, for domestic production or export.

It follows that all investment of necessity requires a substantial proportion of foreign finance. This means that the Barbados dollars in banks cannot be put to use in financing investment projects; for that, the banks will need to receive a larger supply of foreign exchange, from tourism, international business, manufactured exports or other sources. It also means that new investment cannot be funded with the savings of local companies or individuals. Domestic savings are in local currency; in order to do any investment the saver has to acquire foreign currency in addition to (or in exchange for) their savings, so they can pay for the imports they need.

Read full text @caribbeansignal.com

109 comments

  • @ Walter Blackman October 8, 2019 7:30 AM
    “For example, let us assume that we initially establish a Caribbean dollar using a basket of currencies to determine its value. Let us suppose that research reveals that there is a strain of cannabis, found only in the tiny Caribbean, which cures all cancers and HIV. Almost overnight, the Caribbean dollar would become a tradeable currency because the whole world would be lining up to buy a product from us.”
    ++++++++++++++++++++++++++++++++++++++++++++++++++++

    That’s what you think!

    How about the re-colonization of the region under the pretext of uncontrollable crime and corruption endemic in the Caribbean?

    Wouldn’t you witness a return to a period of piracy and big-boys’ warfare and a modern-day form of gunboat diplomacy similar to what occurred in previous centuries over sugar, spices and slave trading?

    Why do you think the Chinese have built up such a massive presence in Africa? Because they love poor struggling black countries with largely corrupt despots running the political show?

    Like

  • William Skinner
    October 7, 2019 11:12 PM

    “@ Walter
    The fact remains that we have been in an economic free fall for four decades. This is our third trip to the IMF. My question was much broader than about correcting the obvious poor economic leadership of the previous administration…..We still have to deal with where we are going to end up, That will call for a different vision.”

    William,
    Barbados was extremely fortunate to have leaders like Grantley Adams, Errol Barrow, and Tom Adams following each other in succession. However, most 3rd world countries have to count their lucky stars if they get one “good” leader within a hundred year period. ,
    Under the Adamses and Barrow, we were fortunate to get jobs and work at them for a lifetime. So much so, that given the small productive base of the economy, we have shut out the generation that came after us. Our young citizens have dreams and fears like the rest of us, but day after day, their anger and frustration mount as Barbados becomes a graveyard for their hopes and ambitions. If we do not produce enough young people and find jobs for them, the NIS will collapse.

    Where are we going to end up? Follow the guns, knives, and the current unprecedented murder rate. Yes, I agree with you that a different vision is now required.
    Does the current administration possess that vision? We have to wait and see.

    Like

  • The bright boys doing the dog! I reading.

    Morning, Walter!

    Like

  • Miller,
    I was making a point, intellectually.
    However, in reality, events would quickly unfold to prove that you are right. That is the type of world we are living in.

    Like

  • Donna
    October 8, 2019 8:08 AM

    “The bright boys doing the dog! I reading.
    Morning, Walter!”

    Donna,
    A very good morning to you also. May the Lord continue to bless you, your son, and the rest of your family.

    Like

  • David the blogmaster,
    You might have observed, over the years, that some commenters are inclined to view calls for a West Indian Federation and for a Caribbean currency as part of a new vision.
    However, we had a West Indian Federation that lasted only 41 months (Jan 58 – May 62). We also had a West Indies dollar that lasted from 1935 (some sources say 1949) until 1965.
    These progressive initiatives were destroyed by typical Caribbean political pettiness and insular thinking.

    The question is: have the attitudes of Caribbean leaders and citizens changed to the extent that a West Indies Federation and a Caribbean dollar will become successful, if reintroduced today?

    “I doubt it,” said the carpenter. And shed a bitter tear. *

    *The Walrus and the carpenter” -Through the looking glass, by Lewis Carroll.

    Liked by 1 person

  • NorthernObserver

    @Blogmaster
    It was not my intent ‘to question and answer myself’. I am no currency expert, and one can learn from others. I began on this thread, by questioning the ability of regional leaders to implement and manage an ‘alternate currency system’.
    After much back and forth, it seems we ended up back at that question. @WB quoted his favorite poem to offer his opinion on the odds.
    I did my personal best, by taking my BHL proceeds, and investing them in a combo Sagicor\ GEL. Why? Better return than deposits, I despised (correctly it turned out) any GoB instrument, but primarily because I “hoped” they might convert trading to a “better” currency. Sagicor is ‘in the process’, while GEL hasn’t budged yet. But it’s assets get more ‘elsewhere’ each year.
    Hence it should follow, that I favor a ‘ready to wear’ solution to the currency issue. I still haven’t been persuaded otherwise.
    It seems to me that opposition stems from pride, a belief we can do better, and a deep yearning to avoid anything which challenges our independence.
    No easy fix. But I certainly lean towards reducing the tools politicians can manipulate and interfere with.

    Like

  • @Northern Observer

    We live in hope!

    Like

  • All currencies in the world are fiat currencies meaning that they are not backed by anything. During the 1970s Richard Nixon took the United States off the gold standard which at the time backed U.S. currency to gold. At the same time Richard Nixon made a deal with Saudi Arabia to transact oil sales with the U.S. dollar to keep the U.S dollar as the world dominant currency. The biggest problem with the Bajan dollar is that it is pinned with the U.S. dollar 1 to 2.1 yet the U.S. dollar will lose 2% to 5% of its value every year making it a complete scam of currency. The best way for West Indian countries to go around this is to have a silver or gold backed currency which can be traded to other countries as gold and silver are the only true forms of currency.

    Like

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