Basically the Belize economy has been dollarized for many years. Nearly everything of signicant value (e.g. real estate, hotel rooms, large sales contracts, cars) is and has been priced in U.S. dollars.

It's just a matter of time before the change is made official. Of course, the Belize Central Bank is a cushy job protection program for a few bureaucrats, and the new Central Bank Building, the fanciest building in Belize, is an example of priorities gone astray. So there are some political problems with going to a U.S. dollar economy.

As noted by others, the Belize dollar is worthless and basically non-convertible outside of Belize. That has been the case for many years as well. The change to a U.S. dollar economy, other than the short-term political fall-out, won't have much practical impact.

--Lan Sluder

I don't see how it CANNOT have an impact.

The 2:1 exchange rate for the Belize Dollar appears to be artificial, arbitrary and without basis and as you say the Belize Dollar has been technically worthless for quite some.

Based on the above I would expect that the Belize Dollar would be devalued in the event of true dollarization and perhaps even without dollarization.

From what I see that devaluation would have to be similar to the rate being given in the black market which has been previously stated at about 20% and appears to be growing.

In the above scenerio anyone with an abundance of Belize currency, be it cash in pocket or in banks, would be HIT to the tune of a 20%+ loss.

I had this happen to me with British Sterling several years back (15% devaluation)
It really hurt and seems that you can never recoup the loss.

Divein: your anology of what the value of the Belize dollor would be if it were pegged to the US dollar is only partially correct. Not to be too much of a pessimist, but the black market exchange rate is based on supply and demand. ie, the need of bussineses in Belize to pay for goods purchased in US dollars. If and when the Belize dollar is converted to anyother currency, it will also take into account such things as the national debt and Belize's ability to repay that debt. An over simplification is, a country is in many ways just like an individual or corportation. Its "value is based on it's "net worth". In other words, it's assets minus it's liabilities. And then factored in is what the lending community feels it's ability to repay is. Most accepted current studies on this has the actual value of the Belize dollar as being somewhere from 7 to 12 Belize dollars to the US dollar. The US dollar is so widely accepted is in a large part because the US maintains a gold reserve to back it's currency. One must ask what is backing the Belize currency and go from there. Good luck.

ARticle on News 5...

The average Belizean doesn't
need an economist to tell her
that U.S. dollars are scarce. But
what should the average
Belizean think when the
government's own Central
Bankers say their advice on how
to solve the problem is not being
heeded? As News 5's Janelle Chanona
discovered...the questions are easier than the
answers.


Janelle Chanona, Reporting
With most of the business community grappling with
the reality that foreign currency, specifically U.S.
dollars, is a scarce commodity, today members of the
Chamber of Commerce met with officials of the Central
Bank to discuss the situation. The hot topic on the
table was the soon to be established casas de
cambio.


Keith Arnold, Central Bank Governor
"It will take a great deal of effort to monitor it to
making sure that in effect we are accomplishing what
we are trying to do, that is making sure that we can
track the inflows and outflows of foreign currency
within the Belizean economy."


But because so much money is changing hands on the
illegal market, banks, have little to buy or sell.
Governor of the Central Bank, Keith Arnold says only
certain sectors of the community will be sold U.S.


Keith Arnold
"And those priorities are our export earners, certainly
for other kinds of things such as fuel, energy, water
and that sort of thing, those are very important areas.
But we don't put a high priority on mere consumption,
and so if the businessman is engaging in
consumption, he may have some difficulty, because
we consider...If you're going to buy foreign currency
to import water for instance or some kind of thing, not
a priority, we are not going to readily facilitate the
commercial banks. We do, but we put them in a queue
and it's not to the top of our priority."


Enter the idea of the casa the cambio, which would
serve those left out but...


Keith Arnold
"A casa de cambio operates efficiently in a floating
exchange system."


So since Belize has a fixed exchange rate, just how
will it work?


Keith Arnold
"A lot of people forget that the Central Bank doesn't
manufacture foreign currency, we earn it, and we earn
it from our export earnings. Whether it be tourism,
export crops, traditional export, or non-traditional
exports, but we have to earn it, that is the emphasis.
That is where we need to, rather than to concentrate
just on mere consumption."


But the business people in the room weren't
convinced...


Businessman #1
"You all cannot show us it will work. Then we have a
moral obligation that we will take it then to the
general populace, to take a fiscal position on this
cambio business. If not, we'll come here over and
over...Argentina changed nine presidents in three days
for foolishness. People were running one day great on
a track, the next morning they found out that there's
catastrophe. We should take history and use it, and if
we have the moral obligation to deal with it, then
let's act responsibly."


Businessman #2
"I don't think it's going to work, Mr. Luke Espat don't
think it's going to work, and I would like to phrase the
same question back to you, you can answer it if you
can. Whose idiotic idea was this?"


Yvette Alvarez, Deputy Governor, Central Bank
"I don't have a clue.


Businessman #2
"So then how is the Central Bank...


Yvette Alvarez, Deputy Governor, Central Bank
"Because the exchange regulations, which is a piece
of regulation that we got from our colonial masters, it
is the Central Bank that is responsible for the
exchange control regulations and therefore it is the
Central Bank that will have to administer it, that is
how we got involved."


Yvette Alvarez, a deputy governor of the Central Bank
says that attitude has contributed to a lack of
confidence in the Belizean economy. And as long as
psychology plays such a large role, appeals to
patriotism will likely fall on deaf ears.


Yvette Alvarez, Deputy Governor, Central Bank
"We are aware that large players in the system, these
people who earn foreign exchange in these sectors,
that as a result of the tightening foreign currency
situation, these players have taken individual
decisions that have resulted in lower flows into the
economy. In other words, people have been holding
their foreign currency offshore. Mr. Arnold calls that a
lack of confidence, and it is an indication that these
people who earn significant foreign exchange really
want to hedge their bets, if you may. And so while my
short answer to your question with regards to
bananas, is that yes, the funds continue to come in.
But with regards the question which you did not ask,
but which was implied, the other traditional sectors,
we have seen some reduction in foreign currency flow
and that has contributed to the further tightening.


The short-term solution requires, an adjustment in the
fiscal and monetary policies. This is not going to be
easy. It means that we have to slow the pace of
growth down a little bit, not entirely, just slow it
down a little bit, because we have too much Belize
dollars out there. This is not the American economy,
this is a Belizean economy with a very small
productive base. Hence the long-term solution, to
expand the productive base, to have industries that
earn foreign currencies, not consume, earn foreign
currency, and that takes a lot of doing. I'm not saying
that the decision is easy. I'm not saying that the
political...it's a political decision, don't get me wrong,


and I don't go to the constituents for vote, I don't go.
It's a political decision and not an easy one and I
don't envy the government."


Reporting for News 5, I am Janelle Chanona.


While 2003 is supposed to see a strong upturn in
the export economy, a combination of factors in the
sugar, citrus, banana, shrimp and tourism industries
will mean that the amount of incoming foreign
exchange over the next eight to twelve months will
remain below expectations.

For those of you who might want additional reading on this subject, try http://www.ambergriscaye.com/BzLibrary/trust287.html That is the study by the Belize Development Trust that suggests the Belize dollar is worth .03 US dollars.


[This message has been edited by Marty (edited 01-30-2002).]

bywarren,

Do you know anything about the "Belize Development Trust?" It and the entire "Belize Electronic Library" is one guy, an interesting but eccentric fellow who used to live in Belize in the 1960s and 70s but who has been back only one time in the past 10 or 20 years and who now lives in Miami. Ray's articles are about 95% personal opinion, 5% fact. Quoting Ray on the value of the Belize dollar is like quoting me about baseball or politics -- it's just one guy's personal, and usually not very informed, opinion.

And, by the way, the U.S. dollar is no more backed by gold than Ray is. The gold standard went out about the same time as Prohibition, about seven decades ago. We have a few billion dollars in gold, but we have trillions of dollars in paper money. It is not gold that gives value to the U.S. economy but the collective, and very much changeable, sense of currency traders that the U.S. economy is sounder than most other economies.

--Lan Sluder

Lan, I gave the web page quoting the Belize Development Trust only as a reference to where the earlier comments were concerning the value being .03 US dollars. As I mentioned, there are other more accepted studies that reference the value more like 7 to 12 Belize dollars to the US dollar when calculated on more generally accepted economic standards. Also, I think you missunderstood my comments on the US backing it's currency with gold. You are correct the US went off the gold standard in 1933 in favor of the gold bullion standard. After which the US dollar was twice devalued once in 1971 and again in 1973 based on the value of it to the price of gold. It was in 1978 that congress removed valuing the dollar to gold. My point is that the US still maintains gold reserves allbeit not in sufficinet amounts to equal the value of printed money in circulation. The gold reserves are just on of the "assets" that are used in calculting the value of the US dollar in the world market along with many other factors. My point being, if someone is interested in forming an opinion on the value of the Belize dollar if it were ever to be traded on the world market, one needs to give alot of thought to what of value Belize has to back its dollar. Whew, I feel like I just put in an allnighter for an exam. Excuse me while I open a biliken hense contributing to add value to the Belize dollar.

[This message has been edited by bywarren (edited 01-28-2002).]

*** Reporter Article***

Dollar Crisis may be close to breaking point

Representatives of four shipping lines currently serving Belize and at least one prominent airline company have made representations to government this week about the bottleneck in cash flow caused by the acute shortage of US dollars in Belize.

Representatives of the Hybur Line, which provides the Miami trading link, Hapag Lloyd and P&O Nedloyd, Hambury Sud, CMAA/CGM and Concorde Line, which provide the European and Asian shipping links to Belize this week published almost identical notices saying they will in future require freight charges and miscellaneous shipping expenses to be paid in US dollars.

Freight collect shipments will be accepted only if prior arrangements are made for payment in dollars.

This week, also two overseas representatives of Continental Airlines visited the Prime Minister to talk about the foreign exchange problem and its effect on airline travel.

It is widely expected that the new insistence on dollar trade will have a profound and immediate impact on imports and on business in general, leading to a dramatic slowdown of the economy.

Prime Minister Said Musa and Budget Minister Ralph Fonseca do not seem to have an answer tot he problem beyond their announced plan to open up dollar exchange houses or "casas de cambio" for the recovery of US dollars...

... Meanwhile, there is palpable anxiety among the business community about the shortage of dollars. Many businesses will be forced to retrench, or worse, close down, if they do not get an immediate infusion of US dollars to pay their bills abroad and to make new orders.

The trickle down effect of the dollar shortage, though well on its way, has not begun to affect the man in the street. But in business circles there is rampant frustration and for the first time in more than 30 years, open talk of a devaluation if the IMF has to be called in for a bailout.

Devaluation would be a bitter pill for the Musa government to swallow, and a calamity of the first order. It is expected that the Prime Minister will resist this move for as long as he can, but there is increasing foreboding that the call will not he his to make.

Meanwhile reports, not confirmed, say that Budget Minister Ralph Fonseca is opposed to calling in the IMF. He is reported to have said that he would prefer to resign as Minister of Budget Planning.

Events, however, are marching swiftly and some think, inexorably towards this end, and the ever cocky Minister Fonseca may be obliged to resign after all.

People blame him for the sea of debt Belize is now facing and for selling off national assets. A recent Central Bank report shows that more than 70 percent of the foreign exchange earned in Belize goes to ay the national debt and repatriation of income to overseas companies.

This is obviously a hot topic with a lot of thought being applied by lots of people both on and off the web.

As Lan said earlier, the Belize Dollar has been virtually worthless for many years, bywarren states that his information is that the US Dollar is worth 7-12 Belize dollars and the Belize Development Trust pegs it at 0.03 cents.

While not scientific, and not necessarily in accordance with standard accounting practices it appears that the general opinion is that the Belize Dollar is worth somewhere in the range of 0.00 ~ 0.15 cents ???

Since the current value of the Belize Dollar is arbitrarily pegged and that that peg is supported only by peoples faith in the Belize Dollar that the dollarization, if it comes, will require a devaluation of even more than previously anticipated. ( How Much ???)

While not an economist, politician nor scholar and with eyesight less than 20/20, I can see clouds in the sky and they are grey.

Chamber's business mixer calls Casas de Cambio "idiotic idea"!


by Adele Ramos


BELIZE CITY, Thurs. Jan. 24, 2002


Central Bank officials and local business people this evening expressed
their opinion that the new Exchange Control (Amendment) Regulations, 2001,
"will not solve the problems," that the implementation of Casas de Cambio
"will not work," and that some big businesses may soon sink due to a
serious foreign exchange shortage.


The statements were made at a business mixer hosted by the Belize Chamber
of Commerce and Industry (BCCI) this afternoon to discuss the new foreign
exchange regulations, gazetted December 29, 2001. The main purpose of the
27-page statutory instrument was to establish Casas de Cambio or exchange
houses, to curb the illegal trade in foreign currency.


"Whose idiotic idea was it?" questioned an irate appliance importer, to
which Yvette Alvarez, Central Bank's Deputy Governor for Operations,
answered: "I have no clue!"


"I don't think it will work; we have to deal with the domestic policies,"
Alvarez agreed, advising a refocus on fiscal and monetary policies.


Alvarez noted that a significant amount of the foreign currency is used for
debt servicing.


Governor Keith Arnold, who will leave the Central Bank in March, told the
gathering that the flight of foreign exchange from the country, which has
caused the foreign exchange situation to tighten, is largely due to "lack
of confidence," as people are hedging their bets.


Belize has BZ$200 million held at the United States Federal Reserve, much
of which it cannot touch. Even though the foreign reserve position is
better than reported last year, there is still a scarcity of foreign
exchange, and it threatens both local production and importation.


John Sosa, manager of MacMillan Brothers Limited, told Amandala that he
could foresee that quite a lot of businesses will soon have to close down
if the problem is not addressed. Sosa said that his company, a trading
house, which depends 100% on foreign exchange to acquire its hardware
goods, owes its creditors for 120 days - 4 months.


"If the situation continues I can see where definitely our business would
suffer."


Sosa, who fears a shutdown if the foreign exchange problem is not solved by
June, said that personally he would like to see Government quit borrowing,
and "face the situation."


David Platt, manager of Western Dairies of Spanish Lookout, told the
newspaper that he used to be able to pay for all his imports, flavoring and
packaging, which account for 25% of the company's sales, within a week. The
company's payment to its foreign supplier is now due a little over a month
- over the usual 30-day limit to settle payments.


"Casas de Cambio will not be able to pay our import bills abroad, but we'd
still have to go to a commercial bank, and if they do not have the money,
then we're still nowhere," Platt commented. His hope is that Government can
solve the problem very quickly, because there are at least 120 farmers and
their families depending on the sale of their milk.


An accountant who wishes to remain unnamed said that although the Casas de
Cambio are not going to create foreign exchange, they would help curb
currency transactions on the so-called black market.


"It will be very difficult to control that illegal trading in foreign
currency ...It [the new regulations] will only give a legal permit to
certain persons who are already doing the illegal trade, and now they will
have a license to do it," he further stated.


"The law is supposed to stamp out the black market, but the opinion is that
it will not work," he argued, adding that the Central Bank has neither the
staff or the resources to carry out a proper monitoring and policing of the
new regulations.


Arnold, speaking with the newspaper after his presentation to the
gathering, said that "certain individual hotel operators" expressed their
desire to become exchange houses, but the applications have not yet been
filed.


Businesses or individuals that want to become exchange houses will have to
place half-a-million dollars into an account, which will be frozen. With
the scarcity at hand, there is the question of who will actually invest
that much in something they are not sure will actually be profitable for them.


Commenting on the capital requirements, Arnold said: "It is prohibitive, in
a sense… You have to have relatively deep pockets to be able to get into
business."


The unnamed accountant said it would be very difficult to make a good
return on the investment.


"It is not an attractive financial proposition to any investor to go into a
new line of business… and certainly the commercial banks are very, very
concerned about it, because it's going to compete with them," he added.


Arnold said that the Central Bank has to try to meet the needs of all the
sectors of the business community - hotel operators, businessmen,
commercial banks - and try to eliminate all impediments in the financial
system.


Alvarez said that the public sector (Government) uses more than US$50
million annually from the foreign exchange pool, and what is left over is
not enough for other purposes. She said that the necessary short-term
solution - adjustments in fiscal and monetary policies, and particularly a
slowdown in the economic growth - would be painful. In the long-term the
productive sector would have to work hard to expand production to attract
foreign exchange.


Amparo Noble, manager of the Angelus Press, said Government, the Central
Bank and the private sector need to sit down and discuss better solutions
to the foreign exchange problem.


Notably, the BCCI has still not been successful in getting a meeting with
Government it had requested since last November, to discuss the foreign
exchange situation. BCCI has resolved to draft a formal communiqué to
express its views on the matter.


"You have to grab the bull by the horns," said businessman Santos Diaz.


BCCI president, Dr. Gilbert Canton, said that Belizean importers now have
to start considering the things they buy. He recalls the recent importation
of "Halloween pumpkins," for example, which appeared on the shelves of a
local supermarket. Undoubtedly, the "imported lifestyle" many Belizeans
live is a major contributor to the problem as well. Therefore, the solution
must start at home.