A former central bank governor is calling for Barbados and other Caribbean countries to “retire” their currency and start using US dollars.
Arguing that the currencies of the Caribbean have now outlived their usefulness and have become a liability, economist Dr DeLisle Worrell said there were no longer benefits to regional economies having their own currency.
“The local currencies could be entirely redeemed by central banks by purchasing and importing US currency notes and coins, using their existing foreign reserve balances,” Worrell said as he outlined how to retire the local currency in his June newsletter.
“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 prevailing exchange rates,” he said.
In his paper, Worrell named Aruba, the Bahamas, Barbados, Belize, Bermuda, Curacao, Dominica Republic, Guyana, Haiti, Jamaica, Suriname and Trinidad and Tobago as the countries that should retire their currencies.
He explained that once the currencies were purchased using the countries’ foreign reserves, all deposits and other liabilities of the banking system would be held in digital record, and be matched by an equal amount of credit and other assets, also held in digital form.
“All that would be required for these balances is to convert both sides of the balance sheet from local currency to the US dollar equivalent at the prevailing exchange rate,” he said.
The former Central Bank of Barbados head argued that the regional currencies were devised at a time when most payments were made using notes and coins, issued in distant metropolitan centres.
He said scarcity of the means of payment was a severe hindrance to commerce and in response, currency boards were set up to issue local currency as needed in the colonies.
He said for a while that system worked well because the local currency was backed by an equivalent value of Sterling.
“In contrast, nowadays payments are made mostly by electronic communication, credit and debit cards, cheques and drafts, with settlement over digitized bank accounts,” he said.
“In today’s world an own currency has become a liability for small economies, limiting access to international goods and services, exposing residents to risks of currency devaluation and inflation, eroding the value of domestic savings, increasing economic and diverting attention from the need to increase productivity and enhance international competitiveness,” he said.
Further describing the currencies in the region as “a nuisance” in today’s world, Worrell said “The world of commerce and finance today bears no resemblance to the world in which Caribbean currencies were devised.”
He pointed to Panama and Ecuador, who have undergone “full dollarization” by abandoning their currencies and replacing them with the US dollar.