KINGSTOWN: Opposition Leader Arnhim Eustace has restated his objection to a devaluation of the Eastern Caribbean (EC) dollar, saying the EC$18 million (one EC dollar=US$0.37 cents) in losses by the Eastern Caribbean Central Bank (ECCB) during the last fiscal year is not a reason to devalue the currency.
The East Caribbean dollar is the legal tender used by eight of the nine members of the Organization of Eastern Caribbean States (OECS) and has been pegged to the United States dollar since 1976 at the exchange rate of US$1= EC$2.70.
ECCB Governor Sir K. Dwight Venner said the losses were due to low returns on Treasury Bills.
“We have not overspent our budget, but there has been a drop in revenue of about 30 per cent due to very low returns on Treasury Bills,” said Sir Dwight while attending an International Monetary Fund (IMF) conference in Jamaica recently.
Some financial analysts have said that it might be time for a devaluation of the EC dollar. However, Eustace, an economist, strongly disagrees.
He said that because foreign trade is conducted with U.S. dollars, a devaluation of the EC dollar would make commodities more expensive.
Eustace, a former prime minister and minister of finance, said wages will not rise at the same rate to cover such increases.
“So you will be worse off. It might improve the economy being competitive, it might give some improvement in that, but it brings extreme hardship on the consumer.
“We have to watch the impact on our economy and I do not support the devaluation of the EC dollar. We have had that system in place for the last 38 years. I think it has worked pretty well and we can’t just jump because we have had some period of difficulty, especially, the 18 million dollar loss of the Central Bank for last year,” he said.
Eustace said that the ECCB has reserves of over EC$130 million, some 95 per cent of the EC dollars in circulation.
“There are not many countries in the world that can boast that. So, while it is important to restructure and develop our economies, let us not get carried away because the Central Bank lost 18 million dollars in a particular year.
“I am sorry that they lost it. I am not particularly pleased that (it) took place, but I understand some of the circumstances which gave rise to that loss. The point is, they lost 18 million dollars. Even given the state of our economies, that is not sufficient justification for any devaluation for the EC dollar,” he said.
The ECCB has said that its reserves can cover imports for eight months, and Eustace said that other central banks can only cover three months.
“So while I understand we must be careful and the bank must be managed properly, there is no reason at this time to fear a devaluation of the EC dollar. In fact, I will oppose it if that proposal is made,” he said, noting that Sir Dwight also opposes a devaluation of the currency.
However, Eustace conceded that it would be difficult to convince the seven independent member states of the OECS to devalue the EC dollar.