Paper vs. Digital Currency
My paper "The Time Has Come to Permanently Retire All Our Caribbean Currencies" has been published in the Johns Hopkins University Studies in Applied Economics, Number 179, April 2021.
The paper contends that the currencies of Caribbean countries have now outlived their usefulness, and have become a liability. They were devised at a time when most payments were made using notes and coin, issued in distant metropolitan centres. Scarcity of the means of payment was a severe hindrance to commerce. In response Currency Boards were set up, to issue local currency as needed in the colonies. The system worked well because the local currency issue was backed by an equivalent value of Sterling, in a global system of fixed exchange rates.
In contrast, nowadays payments are made mostly by electronic communication, credit and debit cards, cheques and drafts, with settlement over digitized bank accounts. In today's world an own currency has become a liability for small economies, limiting access to international goods and services, exposing residents to risks of currency devaluation and inflation, eroding the value of domestic savings, increasing economic inequalities, providing a tool for unproductive government spending, and diverting attention from the need to increase productivity and enhance international competitiveness.
The study explains how the existing Caribbean currencies could be replaced seamlessly and with zero impact on domestic prices. There would be immediate benefits for the investment climate, access to vital foreign goods, supplies and services, and the ease of making overseas payments. The management of public finances is also likely to improve. The economic fortunes of Panama, Ecuador and El Salvador, three countries which now use the US dollar as the domestic currency, are encouraging. They have outperformed the average of Latin American and Caribbean Countries, in Panama's case by a wide margin.
Written and Adapted from Delisle Worrell (former Govenor of the Central Bank of Barbados)