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.
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.