Usefulness of Central Banks

Centrals Banks across the globe are coming under increasing scrutiny given what many consider the implementation of flawed monetary policies. With the possible exception of the US Federal Reserve which has an involved management structure and decision making process, central banks are creatures of elected politicians and are constrained to implement policies to buttress government’s agenda.

The ongoing conflict between Russia and Ukraine during a pandemic continues to disrupt global supply of food and fuel. A key fallout from the mess has been a spike in the rate of inflation in recent months. The ideologues and academics are squealing in glee from calculating the permutations of the real situation. 

Check out the real situation
Nation war against nation.
Where did it all begin?
When will it end?
Well, it seems like: total destruction the only solution,
And there ain’t no use: no one can stop them now.
Ain’t no use: nobody can stop them now.

Bob Marley

With inflation across the globe upwards to 9+%, the effect on SIDs like Barbados will be deleterious. In simple terms Barbados as a net importer will struggle with the consequences managing a trade deficit. However, of more immediate concern is how rising cost of living in developed countries- our source markets for tourism- will fair. Central Banks as agents of governments have been instructed to implement measures to force the inflation rate back to a stable 2%. We have seen the Fed already increased the interest rate by .75% and other major central banks are expected to follow suit designed to influence consumer demand for goods and services.

Back at home there is overwhelming evidence the Central Bank is a rubber stamp for government policy and there is no room for independent policy making. One blatant example which Walter Blackman reminded the public yesterday and has been mentioned in the BU space several times is how the central bank conspired with the previous government to force Barbadians to buy bonds by eliminating the minimum interest rate requirement on savings. It was obvious, it was blatant, it was a desperate attempt by former minister of finance Chris Sinckler supported by the central bank (who was the governor?) to ‘corral’ needed funds. 

Unfortunately when elephants are rumbling it is the grass that suffers. SIDs like Barbados given the design of our economy means we are condemned to be price takers. Although government can try to shield the most vulnerable and keep public sector workers employed, it is a bandaid and the longer current state plays out we have the Freundel Stuart playbook to assist with understanding the outcome derived from diminishing cash resources. 

Do we expect the Governor of the Central Bank to call a meeting anytime soon to announce some novel monetary policy to assist with improving the prevailing economic climate? A consequence of increase in interest rates by large countries is how it will effect Barbados with significant loan repayments of foreign loans.

31 thoughts on “Usefulness of Central Banks

  1. As in the case of BARBADOS where the CENTRAL BANK is a POLITICAL arm of the government and not effectively INDEPENDENT then such Central Banks are basically USELESS.

    Central Banks can only be effective in adjusting a countries finances if they act INDEPENDENTLY of Political Government influence.

  2. @ David Bu
    The standard exercise:
    What are Central Banks?
    Why were they contrived?
    What are reasonable expectations from Central Banks?
    Why are you giving the Federal Reserve System a free pass?
    Is its track record worse or better than the CBB?
    Again I think your expectations are far higher than the social objectives outlined in the legislation governing its roles and limitations.
    Are you still looking for magic bullets? Have you not yet accepted the fact that change is the natural characteristic of life?

    • @Vincent

      The blogmaster inserted the word ‘possibly’ referencing the Fed. The point is to question thr independence of central banks. On this basis how can track records be fairly assessed?

  3. @ David Bu
    Yes. CBB is a very useful contrivance. Things would be much worse without the cadre of competent staff it has attracted.
    Do I have a cognitive bias? Yes. I do.

  4. @ David Bu
    How can you separate the competence of the staff from the usefulness of the CBB?

    • @Vincent

      The issue again is the fact our central bank like many pursue policies that are pro government.

  5. @ David Bu

    Is there any good reason why the Chief Economic and Financial Advisor to the GoB should make public any disagreement with the policies of the GoB? They are advisors.

  6. Central Banks and Governments should both be “non-political” or partisan serving the best interests of all on both or all sides of political fences.

    Where this is breached and broached is when Governments and Central Banks are catering to party positions.
    This is exemplified by Conservative values instead of liberal or social by Governments and Central Banks.

    USA’s conservatism puts business interests ahead of individuals.
    When there are left wing Governments businesses withdraw monies and investment from economy and will invest abroad etc, with right wing Governments they will invest more and right wing claim the economy is growing with their politics folly tricks. This is heightened with white supremacy racism as investing in opportunities for poorest is taken to mean investing to reduce poverty and wealth inequality which blacks bear the burden off.

    People need to decode the double-speak bias and hypocrisy that runs the world.

  7. @ 555 at 9:14 AM
    I concur. Central Banks and Governments should be “non-partisan” and serve the best interests of all members of the society. Unfortunately , there are too many commentators who are always in electioneering mode. What a pity.

  8. 7″ Auction
    I have got music like dirt.
    USA is the richest country in the world but has poverty like dirt.
    It also has a rich history of music which emanates from the underground sounds of the poor side of town.

    Music Like Dirt – The Lyrics

    Riding West Dub · King Tubby · Osbourne Ruddock

  9. @ David
    I thought the idea of independence of the central bank was buried when Dr. Courtney Blackman, said many years ago that the Governor of the Central Bank was “ a creature of the Minister of Finance.

    • @William

      When the blogmaster refers to independence it has more to with the legislated setup as opposed to what obtains now where we have to rely on a strong Governor in seat.

  10. Government and Central banks fuckeries broken down continued
    Bitches print billions and trillions to bail out banks and businesses
    but don’t give a flying fuck about the struggling man and woman’s penury and bankruptcy

    Block Party Rent Party
    We are having a party
    I hope you are hearty
    Music like dirt for your money’s worth
    Girls like sand to match every man

  11. @ William Skinner at 9:44 AM.
    Statements take their meanings from their contexts. I understood the characters and the context when that assertion was made. Obviously Sir CB was referring to his own experiences. Is there any good reason why succeeding governors should see/saw themselves as such? Characters and contexts change inferences.

  12. David

    We will presume that this writer is an ideologue, a double agent, a hypocrite, as previously deemed.

    This grave digger’s mentality that a colonial office operating in Barbados and sometimes called a central bank could have a mind of its own is staid.

    We are also surprised that the Washington Consensus language given to Mia Mottley and toooo often memed did not make the cut.

    William Skinner, on another thread, is quite right that the increasingly unrepayable debt is the real central banking problem the country faces.

    And no amount of pretty talk will make even a dent. No amount of interventions by highly paid consultants will. None of the bs from Mottley either.

    Had you spoken about fiscal space again we would have said that that is emblematic of the financial slavery Barbados has undergone..

    Because the primary functions of the CB have devolved into creating this ‘space’ to extend the financial slavery of Barbados, forever.

    The days for tinkering are done! There is an existential issue on the table and no amount of the ‘respectability’ bullshiiiiiite, the repetition of talking points from Washington nor more borrowing will save the country now.

    They can’t save Washington, far less Barbados, even as a determined colonial outpost of financial imperialism.

  13. @ David Bu

    Post holders carry characters,competencies and perceptions to their jobs. It is how they interpret the naked legislation. Very often they have to breathe life into the innocuous sterile legal framework.It is somewhat like “Judge made law” in some legal systems.
    We have been lucky enough so far to have had governors of the Central Bank that added to its virtues. I hope the trend continues.

  14. @ Pachamama at 10 :37 AM

    Not much to disagree with here,even if you have a higher perspective. I particularly like the last sentence. They are surreptitiously reforming the Washington Consensus. Maybe Barbados is the guinea pig. lol!!

  15. Are You Experienced?
    Paraphrasing bankers mentality
    “Who gives a fuck?!… It ain’t my fucking money!!”
    Markets falling ain’t no thing but a chicken wing and is just part of a cooling down process after the hotting up periods.
    Majority of market share holding are held by investment funds, pension funds, institutional funds etc as well as peoples personal pension plans and moving out exposure from stocks to cash is par for the course.
    Markets react like mob hysteria amplifying ups and downs like manic depression now known as bi-polar and are no reflection of value of underlying businesses.

  16. 555,

    That’s exactly how I feel about the stock market. It is not based on reality but perceptions. Airy fairy nonsense.

  17. The usual outcome. This is the mechanics of the financial market at work. I would hazard a guess this was decided by an algorithm.

  18. What do we wish Clevvy to do? He is focused on regulation and CB currencies. He has very few levers available.
    The inflation which will continue to reach Barbados, was caused by several G20 governments meddling.
    Just this a.m. Scotiabank teed off on the Federal Government (Cda) for continued “pandemic stimulus”. Instead of a targeted approach, they blanketed the economy with free money. For months/years. This had to be inflationary? And it was polinomics. The advice was to target.
    We see this playing out today, in a later stage in Barbados. MAM speaks of a very narrow aid target (1000…too narrow?), and immediately the opposers want broader. MAM likely predicted this, so her actual number was larger than a 1000. But she does not have the money to blanket the entire economy, nor is her power base dependent upon the support of another party. Nor does she face an imminent election.
    Faced with this monetary windfall, CBs in those economies were VERY slow to react. One BoCda employee told me last week ‘we thought the suppliers would adjust to demand changes faster’. Meanwhile people are getting paid to stay home and some wonder why there is a labour shortage. The CBs seem to think Joe Public responds to “guidance”.
    For JCsakes I have thousands descending on the credit advisory, pissed bec the stimulus cheques were gross, and even though this was ‘made clear’, they now don’t have the money to pay the tax and other contributions owing. Steupse.
    For Barbados, the continued challenge in what and where do you focus.
    The Lost part of the term lost decade, is billions were spent with few tangible long term benefits. It is one thing to find funding, it is another to spend it wisely.
    We can only hope that in 7 years, former PM Mottley doesn’t tell us her heart is filled with pride at the sight of ???? (new houses?) and they were glorious years.

  19. NO,

    Say it again, please. These things nèed proper planning and implementation.

    As I said, only those with no room for down-sizing should be helped.

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