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

Chapter 1: Background to Establishment 7 become more complex, with the formation of the National Insurance Scheme (NIS) and the Barbados Development Bank (BDB), as well as the establishment of branches of two major American banks - the First National Citibank and the Bank of America. Apart from these developments, as some banking historians have observed, in newly- independent countries, a central bank was viewed “... as a symbol of political maturity...” (See Crick, 1965, pp. 15-16). The Government of Barbados also felt that it could not, under the ECCA system, implement monetary policies to promote the optimal rate of economic development in the country. 7 One major problemwas the difficulty in formulating a coordinated policy in respect of commercial banks. Moreover, currency issued by the ECCA had to be backed 100 per cent by gold or foreign exchange holdings whereas the realities of contemporary public finance required an institution that could issue some currency, not backed by gold or foreign reserves (a fiduciary issue), to help finance government activities when the occasion required. The second development was the uncertainty surrounding the value of the pound sterling, to which the Eastern Caribbean dollar was tied. Sterling was devalued in November 1967, prompting many countries that held sterling reserves in London to diversify their holdings as a hedge against further devaluation. To pre-empt a continued run on sterling, the UK Government negotiated the Sterling Guarantee Agreement with the various countries. The Agreement stipulated that, in the event of further devaluation of sterling, the UK Government would make a payment which would restore the US dollar value of the reserves of those countries that maintained a minimum proportion of their total reserves in sterling. The idea of the Central Bank of Barbados Notwithstanding the Agreement, the UK currency continued to weaken through 1968 and into the following year. This undoubtedly hastened the Barbados Government’s decision early in 1969, to establish a central bank. On June 30, 1969 Prime Minister and Minister of Finance