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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.

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109 responses to “US Dollars Needed, Not Barbados Dollar Savings in Order to Invest”

  1. Hants Avatar
    Hants

    It seems to be easier to get a car loan than a mortgage.

    Car continuously depreciates in value.

  2. Hants Avatar
    Hants

    ” Hinkson said that of all the Government agencies that fall under his ministry, the BPS was the most heavily impacted by the retrenchments resulting from the Barbados Economic Recovery and Transformation (BERT) programme which went into effect last year ”

    https://www.nationnews.com/nationnews/news/242102/hinkson-regrets-postal-layoffs

  3. Water Blackman Avatar
    Water Blackman

    Donna,
    I take your point.
    We observe the stubbornness, the rudeness, and the ignorance coming from others, but we who know better must never give up or give in
    I read somewhere that attitudes that take 10 years to develop would take about 20 years to be erased. These are not “normal” times. We are in a crisis situation and are responding, not with love and compassion for each other, but with unprecedented murderous hatred.
    On reflection, when I told you good luck with changing people, I realize that you could have interpreted that to mean me telling you not to waste your time trying. I meant to convey my feeling that it was a very tough undertaking..
    At the individual level, we can only do our best to guide and stimulate the thinking in others who show a need for it. I commend you for playing your part.

  4. William Skinner Avatar
    William Skinner

    When read objectively Walter, Pacha, Worrell are saying the same thing. None of them see a genuine modern , progressive Caribbean solution to our problems. The main purpose of the educational system is to confuse those who are slaves to its doctrines.
    Nobody apparently sees the benefits of a common Caribbean currency and the radical reorganization of our fiscal and developmental sectors and aspirations.
    Hence we are here today debating how we can use a foreign currency to rescue us , from the same economic masters that put us in the current quagmire.

  5. David Avatar
    David

    Because we do not trade in mikeymouse currency.

  6. Hal Austin Avatar
    Hal Austin

    @William

    You always bring common sense and intelligence to the blogs. We are witnessing the beginning of the end of the nation-state. For little islands in the Caribbean the future is to abandon or individual sovereignty and shared responsibility. We need a CARICOM central bank, a shared currency, a common fiscal policy. That is the future.
    @William, keep on teaching. Ignore the loud mouths.

  7. Hal Austin Avatar
    Hal Austin

    share

  8. William Skinner Avatar
    William Skinner

    @ Hal
    Thanks. Many here are see themselves as internationalists.

  9. Donna Avatar
    Donna

    Strangely enough Shridath Ramphal said the same thing years ago and actually tried to do something about it. All detailed in the book Inseparable Humanity: An Anthology of Reflections of Shridath Ramphal by Ramphal, Shridath S., Sanders, Ron, Alister McIntyre

  10. David Avatar
    David

    @Vincent and John A

    Missing your erudite contributes to the matter? So far Walter has summed it well. We are too small even as a region to insulate and ring fence our issues. Operating in the disparate way we are accustomed exacerbates the issue. Why bother to educate our people?

  11. NorthernObserver Avatar
    NorthernObserver

    @WS
    Unsure that nobody sees the benefits of a common regional currency, what is more difficult to see is its formation and operation. The Caribbean area’s track record on regional initiatives is not the best. And will the CARI$ get wider acceptance? It is ultimately a trading issue. India has a population and GDP which exceeds not only the Caribbean if taken as one, but a few other areas, yet the Rupee struggles. S.Korea manufacturers still wish the Indian buyers to use another, more widely accepted currency. And Indian exporters are only too happy to accept $US/Euro/Sterling for their goods.

    Possibly a ledger program which automatically finds buyers and sellers will expand the reach of currencies.

    I wonder how many read Dr.W’s entire article. For beyond the currency discussion, the focus was the need to improve public services. His opinion was the latter was a greater stumbling block than the former. Fodder for @Tron “pun weeks”.

  12. Artax Avatar
    Artax

    “Nobody apparently sees the benefits of a common Caribbean currency and the radical reorganization of our fiscal and developmental sectors and aspirations.”

    Mr. Skinner

    Yes, there may be a need for a united Caribbean region. But, in all fairness, this is a point you should be “drilling in the heads” of the political leaders……rather than castigating those contributors to this forum who may not necessarily agree with that opinion.

    Successive political administrations of Caribbean territories have been discussing regional integration at for years, but “to little or no avail.”

    As recent as July 2019, the 40th Regular Meeting of the Conference of Heads of Government of the Caribbean Community (CARICOM) was held in St. Lucia, where regional leaders were expected to discuss the implementation of measures to enhance the CARICOM Single Market and Economy (CSME). Yet, there are problems with immigration policies.

    How serious are our leaders about REGIONAL integration, when they seem unable to convince their Dutch, French counterparts to allow islands such Aruba, Bonaire, Curacao, Saba, St. Eustatius, St. Maarten, Martinique, Guadeloupe, Marie Galante, St. Martin, St. Barthelemy and even the US Virgin Islands and Cuba are not members of CARICOM?

    They can’t come together on West Indies cricket, because insularity is a big factor in the sport. We also witnessed an attempt by Gonsalves and Mitchell to politicize the game. Gonsalves “went over the head” of former CWI president, to seek an audience with the ICC, which basically told him he must do so through the CWI president.

    A smart Gaston Browne said he is not going to become embroiled in any squabble concerning WI cricket. Instead, he joined with CWI to take over ownership of the former “Stanford Cricket Ground.” It was renamed it Coolidge Cricket Ground, where CWI training camps are held and hosted regional first class cricket matches, as well as ODIs T20s featuring WI women and the 2018 Super50 Cup finals.

    They are together on keeping LIAT “in the sky,” but divided on administrative policy. The leaders of some islands would rather invest in extra-regional airlines. but would want to take advantage of the services LIAT provides. Although it is not a financially viable solution, Gaston Browne remains adamant the airline headquarters must remain in Antigua.

    They are divided on the CCJ.

    Then, we had Gaston Browne insisting UWI must allow him to build a university in Antigua, or he would do it on his own.

    The problem seems to be one where we want regional integration, on one had,…… while holding on to individual sovereignty on the other.

  13. Pachamama Avatar
    Pachamama

    William

    You often lump Pacha in with your simplistic generalizations.

    The writer has always seen the OECS currency authority as a solution. Many others have as well. Thought we think it would be impossible to achieve wider acceptance, for obvious reasons.

    We certainly could not be including in the thinking of the people you suggest.

    And if you are going to, you should give justifications for such.

    As far as we are concerned our thinking is poles apart from those you have mentioned.

  14. William Skinner Avatar
    William Skinner

    @ Artax

    Please show where I “castigated “anybody. Otherwise your comments are quite reasonable and pertinent.

  15. William Skinner Avatar
    William Skinner

    @ Artax

    Please show where I “castigated” anybody. Otherwise your comments are reasonable and pertinent.

  16. Artax Avatar
    Artax

    Mr. Skinner

    Perhaps “castigated” was not the appropriate word to use.

  17. William Skinner Avatar
    William Skinner

    @ Pacha
    It’s all a question of broad interpretation .

  18. Hal Austin Avatar
    Hal Austin

    @ William

    The Greenbac k is losing its influence as the leading reserve currency. The World Bank predicts it will in time be replaced by the dollar, euro and renimbi. On this assessment, Dr Worrell is wrong. But he is also wrong for other reasons, including the steady shift of trade from north to south, to south south.
    The US now as debt of $20trn, which once the dollar loses its influence will impact the US economy in a serious way. We are witnessing the dying days of the US.
    As to using the Greenback as our legal currency, the very idea is silly. To do so, Barbados will lose control over its monetary policy, as we already largely have. On BU we often ignore the economics and concentrate on the politics.
    As I have said before, we should uncouple from the Greenback, fix to a basket of currencies and commodities.

  19. William Skinner Avatar
    William Skinner

    @ Hal
    There seems to be a philosophical departure from Worrell’s earlier positions. He seems to have given into the traditional entrenched thinking that he avoided two or so decades ago.
    Lloyd Best never caved but many intellectuals do . You note that Ralph Gonzalves is now a system politician. A far cry from his days at Cave Hill. Same with Hilary Beckles. Very few stay the course.

  20. Hal Austin Avatar
    Hal Austin

    @ William

    We call it going native. It is more comfortable. You get a gong, an official home, people defer to you and some, even on BU, call them people of wisdom. We abandon common sense when it comes to these Gods.
    More importantly, we also abandon our reasoning; how often do you see people advancing an orthodoxy being celebrated on BU? How often do you see what passes as our media gong to the same people to speak on the same subject and they saying the same things? We celebrate mediocrity, especially if the person has a PhD in nonsense.

  21. David Avatar
    David

    We cannot even agree on a one foreign policy. Shouting at each other across the Caribbean pond. We live in hope though.

    Pacha would the OECS welcome Barbados in that sub grouping at this 11th hour?

  22. NorthernObserver Avatar
    NorthernObserver

    @HA
    while I have no personal objections to a fix on a basket of currencies/commodities, I am unclear how that would benefit the Barbadian currency, and the people of Barbados?

  23. Pachamama Avatar
    Pachamama

    William Skinner

    What bollocks!

  24. Hal Austin Avatar
    Hal Austin

    @ Northern Observer,

    By fixing with the currencies you mainly trade with and basic commodities it introduces certainty allowing for a better management of our foreign reserves, public accounts and monetary policy. The people of Barbados will benefit from greater investments, more jobs and improvements in the standard of living. A virtuous circle.

  25. Walter Blackman Avatar
    Walter Blackman

    William Skinner
    October 7, 2019 10:33 AM

    “Nobody apparently sees the benefits of a common Caribbean currency……
    Hence we are here today debating how we can use a foreign currency to rescue us , from the same economic masters that put us in the current quagmire.”

    Pachamama
    October 7, 2019 12:30 PM

    “William
    The writer has always seen the OECS currency authority as a solution. Many others have as well. .
    We certainly could not be including(sic) in the thinking of the people you suggest…..

    As far as we are concerned our thinking is poles apart from those you have mentioned.”

    William,
    Thirty five years ago, when I first started thinking seriously about the benefits of West Indian Federation and the creation of a Caribbean currency, my mind instinctively gravitated.towards the EC dollar. However, I did not feel comfortable using a currency arrived at by simply taking a snapshot of the potpourri of currencies belonging to various Caribbean islands at the time (e.g Barbados, Guyana, TT, Jamaica, Bahamas and EC all had different dollars) and picking what I thought had the potential to be the most “stable”. So my mind continued its search – this time for a currency which had international stability and acceptance built into it. For the purpose of stability (volatility in the financial world is seldom desired), I needed a currency backed by a basket of international currencies.

    The most practical currency base that I could come up with was the Special Drawing Right (SDR), the unit of account used by the IMF. The SDR is not a currency, but it can be exchanged for the currencies of member countries. Today, the value of the SDR is determined by a basket of 5 international currencies: the euro, the US dollar, the British pound, the Japanese yen, and the Chinese renminbi. I want these or similar international ingredients to become part of my recipe for a Caribbean dollar.

    I have no problem whatsoever being miles or poles apart from Pachamamum and his thinking.

  26. Walter Blackman Avatar
    Walter Blackman

    Hal Austin
    October 7, 2019 1:12 PM

    “@ William
    As I have said before, we should uncouple from the Greenback, fix to a basket of currencies and commodities.”

    Hal,
    I am acutely aware that we agree on this issue.
    I simply wanted to show William the thought process which led me to my final position on the matter.

  27. Hal Austin Avatar
    Hal Austin

    @ Walter

    I agree the SDR is preferable as a reserve currency than the Greenback, but all reserve currencies are relatively recent: the Greenback since the end of the war, the euro since the turn of the 20th century and the renminbi since China joined the WTO.
    A reserve currency is simply the currency international bodies prefer to trade in; it is all to do with the exchange rate. The stability of a currency flows from the strength of the economy – US, EU, China.
    Even if the SDT becomes the global reserve currency, as it should, what would citizens in a nation use as their currency in their day to day internal trading? By the way, French West Africa all use a common currency.

  28. William Skinner Avatar
    William Skinner

    @ Walter
    Excellent response. If our leaders had vision , we would not be in this situation now.
    Where there is no vision we beg Uncle Sam.

  29. NorthernObserver Avatar
    NorthernObserver

    @HA
    Thanks. Though it varies from WB’s, as you highlighted commodities.
    Having been stationed in Mali years ago, the West African currency of which you speak is pegged to the Euro? Or at least to whatever the currency of France is.

    @WB
    still unclear as to the benefit. The IMF ‘reserve’ gets its value due to the IMF’s wide membership base. How does Barbados benefit? What makes a Bajan dollar, or a Cari $, more universally tradeable.

  30. Hal Austin Avatar
    Hal Austin

    @ Northern Observer

    We are on the same page, WB and I, I include commodities which we could trade on the derivatives OFC mar kets. For example, we can create a forward contract for rice from a Guyanese, Haitian, Nigerian or Sierra Leonean farmer, without having to pay up front. But we know the due date of delivery and can make the necessary arrangements to receive that delivery and pay.
    In the meantime, it allows the farmer to go to his bank or funder and borrow on that order, a win-win for Barbados and the farmer. I was under the impression that was why we had a marketing board. We can do the same with other commodities: beef, pork, gas,, etc.
    I am aware Barbadian business people and politicians are not familiar with derivatives and find it a dark hole, but they can buy in expertise. Done through CARICOM would be even better..

  31. Hal Austin Avatar
    Hal Austin

    euro, since the turn of the 21st century,,,,,,

  32. David Avatar
    David

    What bank in Barbados will lend based on an ‘order’?

  33. Enuff Avatar
    Enuff

    Miller
    Stop misleading the blog. Hyatt is local and Blue Horizon is local. The hotel stretch is internationally focused.

  34. Walter Blackman Avatar
    Walter Blackman

    NorthernObserver
    October 7, 2019 4:00 PM

    “@WB
    still unclear as to the benefit. The IMF ‘reserve’ gets its value due to the IMF’s wide membership base. How does Barbados benefit? What makes a Bajan dollar, or a Cari $, more universally tradeable.”

    NorthernObserver,
    I sense that you are understanding the ideas being expressed, but you can’t visualize the benefits that would redound to the various Caribbean nations involved. Part of my responsibility, as a public educator, is to create that vision in your mind. There are a lot of dots to connect, so I will present them in small bites.

    Step 1 – Let us get an idea of the basic problem by taking a look at the current fixed exchange rates for the English speaking Caribbean. The list below shows the value of US$1 expressed in the local currency:
    Barbados $2 (from 1973)
    EC $2.70 (from 1976)
    Bahamas $1 (from 1970)
    Belize $2(from 1978)

    These currencies have been pegged to the US dollar since the 1970’s. Why does this create a problem? It is problematic because successive USA governments have consistently pursued policies aimed at keeping the US dollar strong against other countries. A strong US dollar, relative to other currencies, means that the price of exports of goods and services from Barbados, the OECS, Bahamas, and Belize to non-USA markets becomes more expensive. Tourists coming from Britain or Canada, for example, would find their vacations in these countries becoming more and more expensive. Therefore , revenue flows to these small islands will decline.
    Note that a level playing field would apply when these countries are trading with the USA.

    So step 1 tells us that we need to do something about this fixed exchange rate problem.

  35. William Skinner Avatar
    William Skinner

    It was Don Blackman who once stated that we must “demystify” economics
    I think the time has come to demystify currency.

  36. Miller Avatar
    Miller

    @ Enuff October 7, 2019 5:13 PM
    “Miller
    Stop misleading the blog. Hyatt is local and Blue Horizon is local. The hotel stretch is internationally focused.”
    +++++++++++++++++++++++++++++++++++++++++++=

    Don’t understand what you mean by “local”.

    Do you mean the Hyatt will be financed with Mickey mouse dollars like the Valerie and the Grotto aka Dalkeith Woods housing projects?

    One is only left to wonder what the disappointed foreign bond holders would have to say if Barbados has access to so much foreign money to make the pipedream of a rock-hard erection of a Bajan construction magnate come true while the foreign investors in the Four Seasons villas are left to suck the salt from the discharge of the Ionics plant at Spring Garden.

    Given the time that your administration has been at the helm don’t you think it’s more than ample time this ‘wet-dream-world’ of a California-type hotel get off the ground having been in the pipeline since Adam was a DLP politically-conceived baby?

  37. David Avatar
    David

    @Walter

    You started with the 101 stuff. You are aware Barbados and other Caribbean island feel comfortable with the peg to USD because of tourism. What the hell are we going to export anyway that will move the GDP needle?

  38. Walter Blackman Avatar
    Walter Blackman

    David, I know that I started with the 101 stuff. I want to make sure that all of us understand the basic problem first.

    A country’s floating exchange rate is determined by the interplay of the forces of supply and demand for that country’s goods and services within the forex market

    Looking at Caribbean countries with floating exchange rates, we have (the local currency value of US$1):

    Jamaica $137
    Guyana $209
    Trinidad & Tobago $6.67

    You will note that these floating exchange rates are considerably higher than the fixed exchange rates but there is no general agreement among economists within the region as to who is better off – the country with the fixed or floating exchange rate?
    Some argue that the Caribbean countries with the floating exchange rates represent the most competitive economies within the region at present.
    On the other hand, Dr. Worrell has argued that the Jamaica dollar does not float, the Guyana dollar does not float,
    they sink.

    This is the nature of the problem we face, and our discussion so far has suggested that the design of a regional currency (not floating, but fixed to currencies in addition to the US dollar) is a possible solution.
    Showing how that regional currency can benefit Barbados and the other islands is where we are headed now.

  39. William Skinner Avatar
    William Skinner

    @ Walter

    The question I pose to you is this: In our current Duopoly , do you think there is the leadership and vision to take the next step ?

  40. Walter Blackman Avatar
    Walter Blackman

    William Skinner
    October 7, 2019 8:53 .
    “@ Walter
    The question I pose to you is this: In our current Duopoly , do you think there is the leadership and vision to take the next step ?”

    William,
    I prefer to look at life through a more pragmatic lens. All of us believe that we have leadership qualities and vision. Therefore, we hold elections periodically to determine whose leadership and vision will actually guide Barbados forward.

    The general elections of 2018 produced a legislative monopoly, not a duopoly.This is only 2019. Given the short time that the Mottley administration has been functioning, do you think that any of us could come up with fair and conclusive pronouncements about leadership and vision at this point? I honestly believe that most Barbadians, after taking some early missteps of the government into account, would say that Mia is working hard and that the government is trying. They were dealt an extremely bad hand by the last administration.

    As far as I am concerned, the next step after the 2018 elections was to try and arrest the speed at which the Barbadian economy was plummeting towards destruction. Do you get the sense that the economy is still in free fall?

    If you don’t, then that means some progress has been made. Every step towards economic recovery, however small, must be applauded.

  41. NorthernObserver Avatar
    NorthernObserver

    @WB
    Thank you for explanation.
    I gather the objective is maybe a blink, not a sink; a flixed rate. Some flexibility within a known range.
    The tradeable strength comes via size, so for Barbados that comes from being part of a larger monetary group.

  42. William Skinner Avatar
    William Skinner

    @ 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. Beyond what is or is not happening now is the more important question of tackling the current currency debacle and the need for fiscal and radical economic reform as presented in this thread.
    We have traveled the current path before.
    We still have to deal with where we are going to end up, That will call for a different vision .

  43. NorthernObserver Avatar
    NorthernObserver

    @HA
    I “think” I appreciate what you are suggesting. An import risk management system which allows the buyer to buy on margin? Something more common in exports. If you wish, a futures contract (derivative) with guarantees.

    Re CFA, backed by France, so tied to whatever the French currency of the day is. I am not sure a proposed currency for “Caribbean nation states” has external backing?

  44. David Avatar
    David

    @Northern Observer

    You are asking questions you know the answer. Like Walter correctly stated the word is pragmatic.

  45. fortyacresandamule Avatar
    fortyacresandamule

    The trinidad dollar is so tightly managed, it is anything but a floating currency. It wouldn’t be unreasonable to classify the TT$ as a fixed currency within a band. The jamaica dollar is a one-way bet. That is to say, in Jamaica’s case, the currency depreciates only. A true floating currency moves both ways: depreciate and appreciate over time. Worrel’s classification of a sinking currency is quite apt.

    With Guyana new found oil wealth, their currency should appreciate or at least become stable going forward.

  46. fortyacresandamule Avatar
    fortyacresandamule

    Fundamentally speaking, ALL FIAT currencies are suspect. However, as a pragmatist, the US$ is still the only serious game in town for the time being.The prediction of its demise has been greatly exaggerated for years now. Will it eventually fall like other reserve currencies of the past? sure. But the present international financial system set-up favors the green back in most trading transaction, capital raising, forex trading pair, and central bank reserve.

  47. David Avatar
    David

    @fortyacres

    Are you a traditionalist or conformist?

    Interesting comments by you, Barbados and this region does not have the capacity or knowledge capital to uproot itself from the establishment. This is an observation before the detractors chime in.

  48. fortyacresandamule Avatar
    fortyacresandamule

    A floating exchange regime is more suitable for economies with a strong export-oriented manufacture sector along with a DEEP internal capital market. Those economies are more resilient to exchange rate fluctuations. Commodity dependent economies together with an unsophisticated financial system and small open economies are better off with a fixed currency regime or simply just adopt one of the IMF freely usable currency that is appropriate for you.

  49. fortyacresandamule Avatar
    fortyacresandamule

    @David. I go back and forth between both points of view depend on the situation. I am flexible, reasonable and very pragmatic in my outlook. Idealism is a noble endeavor, but not my cup of tea.

  50. Walter Blackman Avatar
    Walter Blackman

    NorthernObserver
    October 7, 2019 11:02 PM

    “@WB
    Thank you for explanation.
    I gather the objective is maybe a blink, not a sink; a flixed rate. Some flexibility within a known range.
    The tradeable strength comes via size, so for Barbados that comes from being part of a larger monetary group.”

    NorthernObserver,
    As I expected, you have nailed it.
    However, technically speaking, the tradeable strength comes not through size, but through what we have to sell to the world.

    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.

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