Both Sides of The Coin: The Story of The Central Bank of Barbados 1972-2017

44 Credit creation From the beginning the Board of Directors and management clearly understood the relationship between the creation of credit and economic viability. At the first Board meeting with the prime minister it had been agreed that the Bank should conduct a study of commercial bank operations and the local hire-purchase system. As Blackman later explained, the Bank had “… to establish its primacy in the area of money and banking without inviting confrontation with the financial community which was initially quite sceptical of the new institution…” (1997). Cognisant of the impact of commercial bank credit on consumer spending and the foreign reserves, during the first half of 1972 the Bank used moral suasion to discourage an increase in consumer loans from the banks. This approach bore some fruit as the year progressed, but the credit problem resurfaced early in 1973, prompting the Board to hold a full discussion on monetary and credit policy in February of that year. This discussion appeared to have been made more urgent by concerns about the impact of the proposed salary increases in the public service. At that meeting, the directors noted the high percentage of commercial bank credit which was going towards consumption and recommended to the minister that the Bank be given jurisdiction over the operation of instalment credit. Specifically, it was suggested that, with respect to hire- purchase, the maximum down-payment should be increased and the period for repayment shortened. In this context Blackman first met with managers of commercial banks on February 20, 1973. Later in the year, a paper on the hire-purchase system was prepared for discussion by the Board. 4 3 2 1 0 -1 -2 -3 FIGURE 2 GROWTH OF REAL GDP (%) 1971 1972 1973 1974 1975 Growth of Real GDP (%) Source: Central Bank of Barbados, Annual Reports , 1972 - 1975.