0

Dollarisation needs extra $3.2bn inflow

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A Bahamian economist yesterday said the economy's full dollarisation was merely “sexy talk” given that an extra $3.2bn foreign currency injection would be required for a one-to-one conversion.

Rupert Pinder, a lecturer at the University of The Bahamas, speaking to the Rotary Club of West Nassau via a webinar, said: “There has been sexy talk in terms of this whole question of dollarisation because it is kind of interesting. I saw something in one of the newspapers where it said that the Central Bank is being asked to dollarise the economy.

"It makes a good coffee table type discussion, but I think we make light of a very, very complex issue. The issue of dollarisation is far more complex than most people really appreciate and understand.

"Most people that talk about dollarising the economy fail to appreciate we already have a semi-dollarised economy. The extent to which we have pegged our currency to the US dollar provides a degree of stability and predictability, which obviously augers well for our foreign direct investment.”

Mr Pinder added: “One other thing people don’t realise is that when you are talking about dollarising the economy, every Bahamian note that is in circulation - which right now is just under $400m in Bahamian notes that are that used to take care of transactions - will have to be replaced by US dollars.

"Right now you have $2.9bn, according to the numbers I saw in the latest Central Bank quarterly report, which are in demand deposits. Demand deposits are really your chequing accounts. That is what demand deposits is, and that’s really considered a part of your money supply. They are really payment on demand, and that is why we call them chequing accounts”

"In the case of chequing accounts, by law, it is pay on demand. That is why it is considered as a part of the money supply. So what I’m saying in short here is, that if you have to dollarise your economy, you will have to find anywhere from $3.1bn to $3.2bn to inject into your economy in US dollars to support those liabilities.”

Praising the Central Bank's economic management, Mr Pinder said: “One of the things in my view that is very important is that the Central Bank is doing a commendable job under the circumstances. I think they are taking a very conservative approach given where we are, and I think rightfully so.

"One of the things they have done with regard to protecting the reserves is certainly with regard to the suspension of remittances in terms of profits, and bringing back in terms of the National Insurance Board (NIB) liquidating at least $100m in overseas investments. While it pales in comparison in terms of $2bn in reserves that we have, or in terms of the overall outflow that is really needed to sustain the economy, every bit helps.”

Mr Pinder projected in April that the foreign reserves would fall to $900m from the present $2bn given the impact of COVID-19, along with a national debt of $10.4bn and a foreign currency debt of $4.2bn.

Comments

tribanon 4 years, 2 months ago

It would take much much more than an increase in our foreign currency reserves equivalent to US$3.2 billion.

Sign in to comment