Economist Jeremy Stephen says the announcement that the Central Bank will not be issuing any new cents should not be seen as an imminent devaluation of the Barbados currency.
After about 41 years of producing the copper-plated zinc coin, the Central Bank of Barbados will not be issuing any more. And what is currently being circulated is expected to go out of circulation within five years.
Since news of this broke yesterday there has been widespread speculation that it could be a signal the Barbados currency was facing possible devaluation. However, the measure is based on the cost of producing the cents.
Stephen, president of the Barbados Economic Society, explained to Barbados TODAY it was a “smart” reason to withdraw the cents since consumer prices have gone up.
“That is the rumour being circulated due to a lack of knowledge. Professionally it should not signal that. It is actually a smart economic management and frees up the Central Bank to do more things. They won’t have to pay for one-cents so often and they might be able to, in the near future, still buy Treasury bills if they choose to . . . . It is not a clear signal of devaluation and it shouldn’t be. It is really a clearer signal of smarter economic financial management,” explained Stephen.
Citing Guyana as an example where they stopped producing coins and were producing higher denominations in paper money, Stephen said: “Nowadays it has become more costly to produce coinage than paper”.
This, he said, was cost effective.
“In Barbados it is a case where it is very expensive to pay for the alloy that is denominated by one cent,” he said, adding that it cost more to produce a one cent that it is actually valued.
“It would be economically viable because they would have to replace the old one cent very soon or get rid of it all together . . . and it is also in a way, an acknowledgement, though I don’t think this is an official acknowledgement that they give, but it is almost an acknowledgement that prices have become so high that one-cents are not as much in circulation as it used to be. So it really is a cost to them and it makes economic sense because it cost more to produce,” he explained.