Barbados will suffer from a flight of capital to the United States while enduring a rise in interest rates because the currency is pegged to the US dollar which will appreciate soon, according to distinguished economics professor Andrew Rose.
Rose said an economic stimulus in the US last year would place pressure on interest rates, leading to the double hit on Barbados, the Caribbean, and a number of other states in the Americas.
At the same time, he said, a rise in interest rates in the US would make investment there more attractive to financiers, which means “anyone in the American orbit, that is Canada, Mexico, the countries in the Caribbean, Central America, Latin America, the pacific and East Asia, all of those are going to feel the effects of capital as it starts flowing towards the United States in search of those higher interest rates”.
The featured distinguished visiting fellow to the Central Bank of Barbados’ 5th Caribbean economic forum said last night interest rates would continue to rise in the northern countries, especially the US, and “that’s going to raise interest rates in tight monetary conditions in all of the financial periphery of the United States, and certainly including countries in the Caribbean.
“It will also probably lead to an appreciation of the United States dollar any country that is fixed to the United States dollar, as for instance Barbados and the countries further north, and the East Caribbean currency area, they will all be appreciating along with the United States,” Rose said.
He warned of a “dramatic effect in all of the countries in the American financial sphere, especially countries that are fixed to the US dollar”, with an appreciating US dollar carrying up the value of the Barbados currency, which in turn means that tourists from markets outside the US would find Barbados more expensive.
Rose’s warning was similar to that of former prime minister and retired parliamentarian, Owen Arthur, who in his presentation to the Budget debate last June, had urged Barbados to shed the United States dollar in favour of a basket of currencies because the US currency was growing in strength, which was bad for Barbados’ tourism and other commerce.
Citing a similar move by Singapore, which he said had reaped success, Arthur, who led Barbados through its most prosperous period, had proposed, “for the purposes of protecting our competitive position that we too should unpeg from the United States dollar ,not because of what has happened recently, but what is likely to happen in the future”.