Central Bank Governor buoyant on stability of currency peg

Amid speculation that the US dollar could weaken, the Governor of the Central Bank has given the assurance that the value of the Barbados dollar will remain at its near half-century fixed exchange rate.

Governor Cleviston Haynes, who acknowledged that while the US dollar may depreciate at some points, he did not expect it to have a significant impact on the Barbados dollar.

Barbados’ dollar has been pegged to the US dollar at a value of 2:1 since 1975.

UBS Wealth Management, which is part of the UBS Group – a leading Swiss multinational investment bank and
financial services company – recently predicted that the US dollar could weaken against other currencies, notably the Chinese yuan, the Japanese yen and the English pound.

The US dollar fell to a one-year low against the yen of 103.76 in mid-March as fears over coronavirus mounted.

But responding to a question during tonight’s Caribbean Economic Forum entitled COVID and Economic Policy: Protecting Jobs, Businesses and the Economy, Haynes said he was confident the US financial market would eventually rebound.

“I think what is critical at this point in time is really related to our trade flows. Yes the US currency may suffer periods of depreciation, but I think at the end of the day what one will notice is that the US financial market is really a strong financial market and that while we are going through a little bumpy period now in the US because of the trade tensions, I think those will be resolved over time and the US will resume its general governance within the financial landscape,” Haynes said.

“We have other countries which are becoming more and more important, the Chinas of this world, but I don’t think that the hole the US economy is going to grow is going to lead to a general collapse of the dollar that will create a significant adverse impact on the Barbados economy.”

In highlighting the effects of COVID-19 on Barbados, Haynes said before the pandemic struck, the country was well on its way to achieving economic growth.

He said while those goals had to be revised, Barbados was still projected to grow slightly in 2021.

“As everybody knows Barbados went through a period of economic paralysis where our reserves were falling and sluggish economic activity and our debt was beginning to explode.

“Over the last two years we worked very diligently to restore the situation to the point where our reserves had been built to comfortable levels, we had some debt restructuring which has brought our debt levels down and the only thing we really wanted to do now was to get the economy to grow,” Haynes said.

“We anticipated for 2020 that we would be able to get some modest growth backed by investment from foreign investors. But when COVID came that basically threw all of our plans askew.”

The Governor said several critical measures had also been implemented in the fight against COVID-19.

Haynes said this included lowering the CCB’s discount rate from seven per cent to two per cent, reducing the security ratio for banks and having discussions which led to commercial banks providing moratoriums to the private sector on loans and mortgages.

He said the fact that Barbados had built up its foreign reserves to close to $2 billion was also a major factor in helping the island battle the pandemic.

The forum also featured contributions from Governors Timothy Antoine (Eastern Caribbean Central Bank), Richard Byles (Bank of Jamaica) and Dr Gobind Ganga from the Bank of Guyana.
randybennett@barbadostoday.bb