Director of the Sir Arthur Lewis Institute of Social and Economic Studies (SALISE) at the University of the West Indies (UWI)
Dr Don Marshall was way out of his league on the issue of money-printing and must leave the assessment of the Barbados economy to the trained economists, said an Opposition Barbados Labour Party (BLP) spokesman.
Marshall, a trained political economist, last week sought to quell fears surrounding Government’s continued printing of money when he delivered the first lecture for 2017 in the Central Bank of Barbados series.
The SALISE head acknowledged that a money-printing binge could hurt the domestic currency, even as he assured that there was no need for panic at this stage.
He also suggested, “most of the commentators who have been speaking about the deleterious impact that printing of money can have, actually overstated the argument about it putting pressure on the currency peg”.
However, speaking during a BLP St Philip South branch panel discussion at the Hilda Skeene Primary School yesterday, Economic Advisor Dr Clyde Mascoll challenged his UWI Cave Hill Campus colleague to “bring the evidence to support his assertion”.
Careful not to push any panic buttons, Mascoll explained that the debt held by the Central Bank had climbed from zero in 2008 when the Democratic Labour Party came to power, to $1.8 billion in 2016.
“Now there are lots of people who try to attack our profession but yet still want to be one,” said Mascol, who holds in a doctorate in economics, and specializes in public finance.
“I want you to see for yourself that this was more than the doubling of the debt being held by the Central Bank [in 2013]. This figure was the same one that initially that the [former] Central Bank Governor [Dr DeLisle Worrell] denied that the Government was printing money.”
The BLP official contended that the current legislative framework that permits the monetary authority to print money was too loose and should instead mimic the more stringent Jamaican model, which requires parliamentary approval before such an undertaking. Currently only the approval of the Central Bank board is required.
“The Central Bank, prior to now, never indulged in this kind of financing of Government. This is outrageous that the Central Bank currently holds $1.8 billion in debt. The Central Bank has not earned profits in a long time so where would it get $1.8 billion to purchase Government securities? So what has happened is that eventually this unusual event that started [in 2009] and grew, and 2013 more than doubled, started to have its impact on the reserves.”
Marshall had suggested that the printing of money by the Freundel Stuart administration as a means of meeting its domestic wage bill would have to remain unchecked for a protracted period before it started to impact on the stability of the dollar.
However, Mascoll argued that this was a grossly understated view of the consequences of Government’s current fiscal trend.
“It is like helicopter money. If I don’t earn money but I have the capacity to create it like a central bank, that money goes into the system, having not been earned by any productive mean and it is still spent. Most of what we spend money on is imported, so if 50 per cent of the dollar is going to be used to purchase imports then it is going to cause a leakage of reserves because we now have to use foreign exchange to support the spending that we are doing locally. So if you now engage in more of this kind of behaviour it will eventually take its toll and it has started to take its toll,” the former DLP political leader said.
Mascoll also explained that had it not been for the excess liquidity in the commercial banks due to low a rate of borrowing, “Barbados would have already ran out of foreign reserves.
“What has happened is that banks have accumulated liquidity . . . the commercial banks are required by law to hold a certain proportion of their deposits at the Central Bank. If the commercial banks had excess reserves, they are required to either keep it or send some to the Central Bank.
“Now given the excess liquidity in the commercial banks, they are sending the excess money to the Central Bank and the Central Bank was and still is converting those excess liquidity into the purchase of the securities; and that is why there is a slow down on the impact on the reserves. If the banks were able to keep that money in the system and people were borrowing then that money would have been used to purchase imports and therefore would have had a more ready effect on the reserves,” he stressed.