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

47 The Ways and Means Even as the Bank supported fiscal restraint, it recognised that the business of government had to go on. As a result, the Bank started, in 1973, the policy of lending to Government - the so-called “Ways and Means” balances. This funding was intended to accommodate the public sector's short-term financing needs and was to be repaid within three months of the end of the relevant financial year. In 1973, the limit for these temporary advances to Government was set at $8 million and by the end of that year, outstanding advances amounted to $3.4 million. This facility was fixed at $14.5 million for financial year 1974-75, but the process was regularised in 1976 when the Ways and Means limit was fixed at 10 per cent of estimated current revenue. The Bank Rate The Bank’s role as lender of last resort to the banking sector was established during 1974. From September 12, the Bank started to make short-term advances to commercial banks for a period not exceeding 14 days. This “bank rate” was first set at 10.5 per cent but was reduced to 7.5 per cent by the end of 1975. Early adjustments to monetary policy During 1974, the Bank’s monetary policy was influenced largely by government’s fiscal operations. The Bank supported the government’s policy of fiscal tightening and the governor called publicly for trade unions “to exercise restraint in their wage demands...” ( Annual Report 1974, p.2). In order to minimise the impact of the budget deficit on the balance of payments, the Bank transferred much of the burden for the financing of government operations to the commercial banks. During 1974 the Treasury Bill requirement was raised on five occasions and by year-end Chapter 2: The Early Years: 1972 - 1975