Foreign exchange boost as Central Bank defends fixed exchange rate

Barbados has reinforced its international reserves and defended the stability of its currency through a series of repatriations and foreign exchange sales, according to the latest annual report from the Central Bank of Barbados. 

The measures have helped maintain the country’s fixed exchange rate and provided a robust buffer against global economic shocks.

The country repatriated some $84 million in foreign currency held abroad back to Barbados currency, alongside sales of the Barbados dollar last year, the report revealed. The report, which has been laid in Parliament, showed there were 17 such repatriations in 2024.

Pointing out that the bank continued to prioritise the protection of Barbados’ fixed exchange rate, the report said that, while this figure represents a decline of $51 million relative to 2023, the proceeds from these sales continued to provide a boost to the country’s international reserves.

“Sales of United States dollars abroad totalled $33 million in 2024, less than half the amount traded a year earlier, while sales of Great Britain’s pounds sterling fell to $8 million in 2024, a decrease of $7 million compared to 2023,” the central bank said.

The trading of Canadian dollars, Eastern Caribbean dollars, and euros each yielded $2 million by the end of 2024, while Barbados currency sold abroad increased by $4 million to reach $37 million, the report added.

“The prioritisation of protecting Barbados’ fixed exchange rate demonstrates its indispensability to ensuring macroeconomic stability,” the Central Bank said.

“Maintaining the peg and safeguarding macroeconomic stability,” it added, “are inextricably linked, and, therefore, were at the forefront of the bank’s strategic activities in 2024.”

Citing reserves management as the anchor for a strong Barbadian dollar, the financial institution insisted that maintaining a high level of international reserves is crucial for upholding the peg of two Barbados dollars to one United States dollar.

“This peg is not only sacrosanct to all Barbadians, but also essential for sustaining Barbados’ economy and Barbadians’ way of life. The bank’s strategy in this area has continued to succeed, as evidenced by the gross international reserves reaching a record high of $3.2 billion at the end of 2024, well above the generally recognised 12-week benchmark,” the report declared.

“Maintaining reserves significantly above this benchmark is crucial, as it provides a substantial buffer against external shocks, such as fluctuations in international markets or economic downturns.”

It contended that this excess in reserves enhances investor confidence, underpins the stability of the Barbadian dollar, and ensures that the Central Bank can meet its foreign obligations and support the import-dependent nature of the economy without strain.

The Central Bank explained that in an environment where external uncertainties persist, such robust reserve levels are essential for safeguarding the financial system and supporting sustained economic activity. (EJ)