In December 2020, a new Central Bank of Barbados Act was passed, replacing the one that had been in place since the Bank was established in May 1972. Here are three things you should know about the Act and how it impacts the Bank’s operations:
The Bank has two main objectives
While the Bank has long understood its mandate to include maintaining Barbados’ fixed exchange rate and to promote financial stability, these have been made explicit in the new Act, which also identifies a number of functions that support these objectives.
One such function is to manage Barbados’ international reserves, which are required to maintain the Barbados $2 to US $1 exchange rate that has been in place since July 1975.
Elson Gaskin, Bank Secretary, explains just how critical reserve management is.
“We import a lot of goods into Barbados – fuel, food, and so on. We produce very little here relative to what we import. Obviously, those imports have to be paid for and they have to be paid for in hard currency, be it Pound Sterling or US dollars.
“The US dollar is the world’s reserve and settlement currency. We have to make sure that we have enough reserves on hand to pay for those goods.
“So, one of the things we always like to know is that we have an adequate amount of reserve cover for several weeks of imports,” said Gaskin.
The New Act Creates a Three-Pronged Governance Structure
Under the new Act, responsibility for the Bank and its operations is distributed among the Board of Directors, the Executive Committee, and the Audit Committee.
The Board’s role is largely supervisory, setting policy and providing oversight. Three members of the Board then comprise the Audit Committee, which is responsible for ensuring that internal controls are followed, monitoring
risk, and being the primary approver for the Bank’s drafted audited financial statements.
The Executive Committee, which comprises the Governor and the two Deputy Governors (one Deputy Governor post is currently vacant) is responsible for the Bank’s day-to-day operations.
The New Act Increases the Bank’s Autonomy
Ensuring that the Executive Committee is firmly in charge of the Bank’s daily business is part of a larger move towards increasing the Bank’s independence.
“Autonomy was stressed during the drafting of this Act. And autonomy is buttressed by having the professional people, who are actually on the staff of the Bank, make the day-to-day decisions,”
Gaskin explained.
Another change aimed at increasing the Bank’s independence is an adjustment to the length of the Governor’s tenure. Where previously the Governor was appointed to serve a five-year term, that term has now been extended to six years, as has Board members’ terms.
Gaskin explains the rationale.
“Our political cycle is normally five years, and because ultimately, there is a political process for appointing the Board, it was felt that for continuity, the Board’s tenure should not coincide with the political cycle. Because then you could have a change of Government – as has happened in the past – and then you have the Board change in one fell swoop, and with it, the loss of institutional knowledge,” he said.
While the details of the new Act may seem relevant only to the organisation, Gaskin believes that the inner workings of the Central Bank of Barbados matter to all Barbadians, because as a public institution, it depends on public trust, and “if you are not well-run and governed, obviously you will erode the public trust.” (PR)
