Making a strong case for Barbados to defend its 2-1 currency peg to the United States, Government Senator Rawdon Adams today argued that the two pieces of financial management legislation before the Senate could help to restore confidence in the Barbados economy.
In his contribution to the debate on the Central Bank of Barbados (Amendment) Act, 2018 and Financial Management and Audit (Amendment) Act, 2018, Adams said the two measures went beyond mere issues of financial and economic management and in fact raised questions related to the currency peg arrangements.
Noting that the Central Bank’s recent financing of Government expenditure had eroded the credibility of the financial institution, triggering concerns about the stability of the Barbados dollar, Adams stressed that the legislation was a step in the right direction.
“If we put in place a rule that prevents Government from leaning on such an institution that confidence can be regained. That is important not only from the public perspective but also for the actors with whom the Central Bank interacts,” he said.
Fending off any idea of the devaluation of the Barbados dollar, the financial expert underscored that a fixed peg was “a good thing and defending it and managing it was a good thing”.
He cautioned that if the island were to float its currency, “Barbados could find itself polarized economically and socially to a degree that we wouldn’t recognize right now.
“The key point here is that since we tied our currency to the US dollar in 1975, over time, not only do we reap the benefits of the technical goals . . . but we get greater clarity in planning our budget because we are able to see costs and revenue and understand that they are not going to sway wildly because beneath that we don’t have a floating rate, we have a fixed rate.”
Adams said while some neighbouring Caribbean countries have thrived with a floating currency, it would not work for a small economy like Barbados.
“People will say Jamaica has a free floating currency and they are doing very, very well at the moment, Trinidad and Tobago not so well, but also a free floating currency and Guyana, these countries are far larger than Barbados and a fair comparison to my mind is to look at places like Bermuda, Cayman Islands, The Bahamas, the eight countries in the Organization of Eastern Caribbean States and even the Dutch Caribbean islands – Aruba, Bonaire and Curacao – all of them have a fixed rate, a fixed exchange regime. And there is reason for that,” he said.
The senator stressed that the formalized rules and discipline imposed in the legislation would go a long way in building of consensus on the future direction of Barbados with key stakeholders, particularly the Social Partnership.
“It would be a tragedy that we underestimate the importance of these rules to date . . . . I am far more optimistic that it will deliver benefits in significant areas: the Central bank’s credibility and the resumption of . . . the social partnership cooperation and the resumption of growth,” he maintained