The strategic strength of the BDS dollar has been eroded by the lack of growth in the local economy, overall drop in GDP, rapid increases in foreign debt, an inability of the Barbados market to generate increases in foreign income, the external debt restructuring, foreign debt default & being barred from international capital markets along with a continued spiral in oil and good and services. The commitment to the 2:1 peg requires a widening commitment to borrowing larger than usual sums of foreign debt to fill the gap thus continuing to drive up inflationary prices which will then be passed onto local consumers and later collected via indirect taxation. The present BDS dollar was created after the establishment of the Central Bank of Barbados (CBB), which was founded by an Act of parliament in May, 1972. The Barbados dollar replaced the East Caribbean dollar at par in 1973.
Since 5 July 1975, the Barbados dollar has been pegged to the US dollar. Since the Erskine Sandiford IMF experience, the IMF officials hold a view that the 2:1 currency peg needs to be softened or devalued in order for Barbados to attract substantial foreign direct investment/income. The Mottley administration’s most recent move to benefit from the foreign exchange circulating in the banking system is the Exchange Control Amendment Act 2020 which provided for the continuation of the collection of a foreign exchange fee implemented by the Stuart Administration in 2017. However the IMF recommened that it be repealed.
It is public knowledge that any country that defaulted on its foreign debts and entered into IMF programs eventually devalued their currency. Countries with greater productive and earning capacities such as Jamaica, Trinidad, Mexico and Guyana all have had currencies based on strategic resource based growth underpinned by a currency peg similar to the BDS / US 2:1 peg but now they have floating currencies. Despite Barbados’ reserve strength no comfort can be found in a small open economy where a widening foreign exchange gap exists; the current account deficit is $1B in loss per year for 2 consecutive financial years.
Barbados is now a republic with no republican constitution in place and in finance & risk management parlance, sovereign risk is any risk arising on a government failing to make debt repayment or not honoring a loan agreement where such actions can be resorted to by a government in times of economic uncertainty, political uncertainty or even to portray an assertive stance misusing its independence. To determine misuse of Barbados independence, on display was the ministry of finance overpaying fees to White Oak Advisory at $54 M . The parliament passed the debt restructuring act with a collective action clause which states that only 75% of creditors need to agree for future restructurings to be legal; 4 government ran istitutions can own 75% of debt , the debt settlement bill which pays all liabilities of government in bonds including payment for lands and medical injury, arbitrary use of the Land Acquisition Act where government has taken lands of owners then to tansfer ownership to private developers.
The direct purchase between owner and developer could have occurred without governmental intervention. The write off of $1.6B owed to the Central Bank and $1B from NIS