Central Bank must operate as an independent entity – Straughn

The Central Bank of Barbados must operate as an independent institution working in the best interest of the people, Minister in the Ministry of Finance Ryan Straughn declared in Parliament today.

“The Central Bank is critical to the maintenance of order and stability. Central banks communicate with the public and certainly in the past the public would have regarded the central bank through its governor communicating confidence. That confidence was built on the idea that the bank was looking out for them.”

It was the Central Bank’s first governor, Sir Courtney Blackman, who was declared his position “a creature of the Prime minister”, setting the central bank apart from some of its counterparts in its role in setting monetary policy.

While only the board of the Central Bank is politically appointed, successive administrations have sought governors who would be more closely aligned with its policy stances, and have been hostile towards governors who criticise the Government of the day.

But Straughn said that while that the Central Bank must operate as an independent entity, it must also be self-sufficient.

“Their independence is driven by the fact that if you want independence you cannot be coming to Government for money. Therefore it means you have to run your affairs in a way that you don’t come to the Government or taxpayers for money when you find yourself in trouble.

“There is a cost to independence and the reality is the financing of the bank and the operations of the bank must be done in manner that does not require it in the future to come to the Government or to any Government for financing. The bank experienced some losses
in the last few years which is mind
boggling. Central banks typically do not incur losses.”

The economist said Government had done much already to pull the central bank out of the state it was in when it came to office.

He told fellow lawmakers: “Throughout this debt restructuring we would have written off the $2 billion in treasury bills that were on the books of the Central Bank. Like any other institution it requires certainty in order to be able to manage its own affairs. The Central Bank must oversee the financial regulations of the country on a firm financial footing.”

Straughn said never again should the Central Bank be used to finance Government without some level of oversight.

“The Central Bank plays a critical role in the management of a society. Under a previous dispensation the Central Bank found itself aiding and abetting the previous administration in creating a situation where the fiscal management was in question.

“Its own credibility was in question. The Treasury was helping to finance Government expenditure and taking the country in a direction contrary to its mandate.”