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

51 before the Barbados currency was introduced, he pointed out that it was very important for a country to determine the correct currency in which to hold its foreign reserves. Once the right currency had been determined, the country had to fashion measures to maintain the “correct” level of reserves. He also explained that when a country held reserves in a foreign currency it was supporting the value of that currency. Soon after the publication of the governor’s views, the Bank established guidelines for investing the country's foreign reserves. The policy showed an aversion to high-risk instruments, with a clear preference for Treasury Bills and/or securities issued or guaranteed by the governments of the US, UK and Canada as well as by the World Bank, the IDB and the Caribbean Development Bank. The rules allowed for the purchase of lower-risk instruments for strategic or other important reasons. The exchange rate issue was next discussed at the Board meeting of March 26, 1974, when it was revealed that the UK Government was extending the Sterling Guarantee Agreement to the end of that year and reducing the MSP to 78 per cent. Board members felt that some effort should be made to get the ratio closer to 50 per cent. The Board also discussed the benefits of a currency link to the US dollar citing, in particular, the possible reduction in the external debt service burden, price stability and the possible fillip to the tourism sector. It was as a result of this discussion that the Bank recommended to the minister of finance that the Barbados currency be fixed against the US dollar. Later in the year, when it was revealed that the UK Government had rejected any further reduction in the MSP, it was decided to speed up the conversion of the country's assets into US dollars as a precautionary move. An exhaustive discussion on exchange rate policy took place at a specially-convened Board meeting on December 30, 1974, the day before the Sterling Guarantee Agreement was due to expire, with Research Director Dr. DeLisle Worrell in attendance. The discussion focused on the proposed parity against the US currency, the timing of the move and management of the reserve portfolio. Blackman favoured a rate of two Chapter 2: The Early Years: 1972 - 1975

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