The man who until two years ago headed the institution charged with protecting this country’s dollar, says the time has come for Barbados and its regional neighbours to give up their domestic currencies.
According to former Governor of the Central Bank of Barbados Dr DeLisle Worrell switching to the US currency would essentially eliminate the threat of domestic currency depreciation and with it, the resulting possible disruptions to economic stability. The economist said there was no time like the present to switch to US currency and he noted that the process is not as difficult as some people may imagine.
Worrell, who was one of the speakers of the SALISES conference this week, suggested a two-prong process, which involves physically purchasing US notes and coins as well as digital frameworks.
“The local currencies can be entirely redeemed by the Central Bank by purchasing and importing US currency notes and coins using their existing foreign reserve balances. Central banks and monetary authorities in the Caribbean all have foreign reserves sufficient to purchase US notes and coins to replace the full issue of local currency at the prevailing exchange rate,” he said, pointing out that most CARICOM countries, including Barbados, have the requisite foreign reserves to facilitate the recommended dollarisation process.
He added, “All deposits and other liabilities of the banking system are held in digital record and that an equal amount of credit and other assets would also be held in digital record. All that would be required for these balances, is to convert both sides of the balance sheet from local currency to US currency at the prevailing exchange rate.”
In its post-independent history, Barbados has faced several threats of devaluation. More recently, the decision by the Mia Mottley-led Government to go to the International Monetary Fund (IMF), was in part triggered by a determination to save the value of the dollar. In his presentation, Worrell argued that dollarization would avoid these scares.
“Domestic currency depreciation brings challenges that inhibit the country’s economic development prospects. It undermines investor confidence. It undermines investor confidence because prospective investors know that devaluation would be inflationary and would trigger increases in import cost as well as unease and unrest in the labour force. The threat of devaluation also leads to capital flight as businesses and wealthy individuals switch to the US dollar value system,” said Worrell.
The former Governor argued that the recurring threat of domestic currency depreciation also widens the disparity in income distribution.