September 28, 2007

‘Keep watch’ on declining US dollar

by Geralyn Edward Barbados Nation28.SEP.07

BARBADOS NEEDS to closely monitor the continuing decline of the American dollar against which the island’s currency is pegged, says experienced economist Anthony Johnson.{{more}}

While foreign reserves generated from tourism could be boosted by increased British and Canadian visitors to the island based on the strength of their currencies, Johnson said, this advantage could be erased by the growing cost of imports from Canada and Europe.

The Canadian dollar is almost on par with the American dollar, selling locally at BDS$2 for CAN$1, while the pound sterling is going for $4.12. The United States dollar is at its lowest against other major currencies since 1992.

The newly elected Barbados Economics Society president said a careful balancing act was necessary “to avoid a deterioration in our balance of payments on current account”.

“If, however, there is a faster rate of growth on the exports side through tourism, then that would reduce any deficit,” he noted.

“I think it would be more deleterious rather than positive on the current account . . . . If we can attract more British and Canadian investments now, then that would be a positive on the capital side,” the former Central Bank consultant told BARBADOS BUSINESS AUTHORITY.

Asked if it was a good time for the island to expand its range of foreign currency reserves, Johnson said it was all about managing risk. He said additional holdings of other currencies “had to be monitored carefully”.

“You don’t want to lock yourself in, but you should be always ready to shift if the situation turns against you,” he said.