Barbados

Barbados fixed its currency initially to GBP and then from mid-1975 to USD. The scope for monetary policy was limited but, given capital controls, non-zero, and the main instruments were cash and securities reserve requirements, moral suasion and later interest rates. Periodic bouts of fiscal retrenchment were needed to preserve the peg. In the decade after the GFC the central bank found itself financing a large part of the fiscal deficit, which contributed to a reluctance to implement major reforms of the monetary arrangements.

YearsTargets and attainmentClassification
1974-2017Barbados central bank established mid-1972 and Barbados dollar issued December 1973 to replace East Caribbean dollar, both then fixed to GBP; central bank operates via reserve and liquid asset ratios (including specific treasury bill requirements), moral suasion, interest rates, rediscount facilities and credit controls, within context of substantial exchange controls; July 1975 peg switched from GBP to USD; early 1980s attempts to develop offshore banking; widely varying fiscal deficits lead to recurring falls in forex reserves despite some foreign borrowing, policy reacts with periodic fiscal and monetary tightening (and wage restraint), enough to maintain peg to USD; mid-late 1980s authorities resist IMF pressure for devaluation; early 1990s very strong fiscal adjustment needed; as of late 1990s monetary policy relies on reserve (cash and securities) requirements and interest rates (discount rate and minimum bank deposit rate set by central bank), while OMOs (in primary market, little secondary trading exists) are rare, and authorities are reluctant to liberalise interest rates and capital controls; 2001 introduction of indicative (maximum) lending rate to guide bank loan rates, justified on basis of oligopolistic banking system (later contested by IMF staff study), phased out late 2002; 2004 authorities beginning to respond reluctantly to push for switch to indirect monetary instruments and (as part of Caribbean Single Market and Economy initiative) capital account liberalisation; 2008-9 major shock from GFC, recovery very slow despite large rise in debt (above 100% of GDP), sharp fall in bank lending to private sector; early 2013 new interest rate policy with focus on (lower) treasury bill rate leads to significant deficit monetisation; mid-2013 turn to fiscal consolidation, but continued large financing of fiscal deficit by central bank; 2015 minimum deposit rate ended;  2017 rise in securities reserve requirement transfers much of burden of financing deficit from central to commercial banks; plan for increased central bank autonomy with stricter limits on financing of government; statistical database undergoes some improvement but needs moreaugmented exchange rate fix AERF

Selected IMF references: RED 1973 p42; SR 1973 p8; SR 1974 pp10-11; RED January 1975 p44; RED December 1975 pp34-5; RED 1977 p36; RED 1984 p23; RED 1987 pp36-7; SR 1988 p11; SR 1991 p10; RED 1992 p8; SR 1992 pp1-3, 6-7; SR 1997 pp13-14; RED 1998 pp22-3; SR 1999 pp11, 13-14; SR 2000 pp7, 12-13; SISA 2001 pp6-14; SR 2001 pp11-12; SR 2002 p8; SR 2004 pp11-12; SISA 2005 pp5-27; SR 2005 pp17-18; SR 2006 p14; SR 2007 pp12-13; SR 2008 p13; SR 2009 p10; SR 2011 pp12-13; SR 2014 pp5-67, 15; SI 2015 pp15-19; SR 2015 pp16, 17; SR 2018 pp17, 18-19, 20.