Notes From a Native Son: It is Urgent We Discuss What to do About Our Foreign Reserves

Hal Austin

Hal Austin

Introduction:
One of the challenges of a small economy in a global landscape that is deep in crisis is the need for news ways of thinking. And, a self-inflicted deadweight that has fallen upon most small economies is the over-whelming desire to accumulate excess foreign reserves. The debate that is taking place among leading economists and policymakers about a more sustainable use of excess reserves and the social cost of warehousing such piles of money has created its own library of literature.
(For those of you who are interested, see, for example: Cedric Achille Mezui, Uche DuruCedric: “Holding Excess  Foreign Reserves Versus Infrastructure Finance: What should Africa Do?” African Development Bank Group. Wijnholds and Kapteyn: “Reserve Adequacy in Emerging Market Economies”, IMF, 2001. #Dr Courtney Blackman, “Managing Foreign Exchange Reserves in Small Developing Countries,” Group of 30, 1982). There is a strong case against the fetishising of foreign reserves when a stagnant economy is crying out for urgent and strong stimulation.

Infrastructure:
Financing infrastructure, for example, which in an economy like Barbados is badly in need of upgrading, there must be new ways of raising funds without adding to national debt and without entering private/public partnerships which would only hold the nation to ransom. What is badly needed is deeper financialisation, particularly from non-banking sources, to fund small and medium enterprises and, more so, infrastructure developments. One possible source of such funding is excess foreign reserves, the build up of which has attained an almost obsessive cult following among some policymakers. However, to clarify this there is a need for a widespread national debate on what is an adequate level of foreign reserves.

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Get Your Facts Straight Barbados Today – The Foreign Exchange Argument

An article published in the Barbados Today  (21 July 2011) was startling more by its revelation than content. The article titled First Choice boldly asserts in its intro,  “Thanks but no thanks. That appears to be what an increasing number of businesses and individuals buying about $600 million in foreign exchange each month are telling the island’s seven commercial banks, preferring to buy their foreign cash from the Central Bank of Barbados”. It is obvious the author (SC) got it wrong.

To the credit of Barbados Today reference was made to a Central Bank Report – Central Bank Intervention in the Barbadian Foreign Exchange Market (page 46 ) which is cited as the source of the author’s revelation. BU has scoured the Central Bank report several times and is unable to find a supporting basis for Barbados Today’s conclusion. The regulatory framework which has the Central Bank as the regulator and commercial banks the financial intermediaries exist. For the author to suggest that an increasing number of business and individuals are turning to the Central Bank to buy foreign exchange is inaccurate and irresponsible journalism at its highest. What it confirms is the dearth of journalistic talent generally but specifically in the realm of financial reporting.

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