A Common Caribbean Currency is no longer practical for this region.
That’s the word from Dr. Delisle Worrell, Governor of the Central Bank of Barbados.
Speaking at a function at the Peterson Institute for International Economics, in Washington D.C., Dr. Worrell said that while the common currency would have been ideal for transaction purposes, achieving this now seems very unlikely.
Dr. Worrell spoke on the topic, “Macroeconomic Options for Very Small Open Economies”. After the presentation the Governor fielded questions from the audience which included a number of international economists.
The common currency has been promoted as one of the components of monetary integration in the Caribbean, especially with the move towards a Caribbean Single Market and Economy (CSME).
Dr. Worrell is among a group of Caribbean economists and other intellectuals who had a strong case for the currency which would have been fixed to the United States dollar.
“What we have failed to achieve in the Caribbean is a consensus on the approach towards exchange rate management, which I have been advocating,” according to him.
“So the largest economies in terms of dollar size have now experienced exchange rate depreciations – Jamaica, Trinidad and Tobago being the largest,” he said in response to a question from the audience at the Institute.
“So I think that puts the idea of a regional currency beyond the reach of possibility,” he said.
The Barbados top Economist maintained that those countries which have maintained their peg (to the US dollar) are not going to go back to a situation where those pegs are under threat.
Because of the confidence issue, the currencies which have been depreciated countries would be unable to commit their currencies to a new peg.
“So unfortunately even though from a point of transactions, the pooling of reserves Common Caribbean currency would have been ideal, this is now no longer practical,” said Dr. Worrell.
Barbados, the Bahamas, and the countries making up the Eastern Caribbean Currency Area function with a fixed exchange rate whereas Guyana and Jamaica have floating exchange rate. Trinidad and Tobago has a combination of a floating but fixed rate.
In response to another query, this time on the rising commodity prices, the Governor said that there are differences among the Caribbean as far as that issue is concerned.
He explained that Trinidad an Tobago is the largest mineral exporter in the Caribbean, while countries like Belize and Guyana do export some commodities as well. Barbados, he noted, does have some deposits of oil but the amount is too small to export.
However, he told the audience that mineral the biggest challenge for the Caribbean economies is volatility and the unpredictability of prices. “That has been a challenge for the exporters as well as for the importers. Beyond that, the additional challenge for the importers is that it has forced us to have higher levels of reserves because a big price increase forces us to cutback on spending in order to economise on foreign exchange,” the Governor stated.
He also touched on the policy issue of fiscal policy in Barbados so as to maintain adequate levels of foreign exchange in Barbados.
Dr. Worrell pointed out that foreign exchange at the stated that what is fundamental to the Barbados economy is that it runs on foreign exchange. “So you have to balance what goes out with what comes it,” he added. Source