My wife is a pretty sharp cookie and a decent economist, so when she alighted on an article in yesterday's papers ('Paying with gold', Weekend Nation, page 3), I had to take note. She had just read that jewelery was being used in exchange for items such as brand-name clothes and shoes. She asked me "Since when is gold legal tender in Barbados?" Without too much hesitation, I said that it was not, but neither is the US dollar or other foreign currencies, and we see them being offered and accepted quite freely and openly. Our training tells us that things like this can be the thin edges of several wedges. One concerns whether people have lost confidence in the local currency. I think that one does not really apply. Barbados is not suffering very high inflation and the Barbadian dollar's fixed rate to the US dollar has been maintained a key pillar of economic policy for three decades, to the point where one former Governor of the central bank said recently that the fixed rate is 'sacrosanct'. Another concern is whether it's a way to bypass certain administrative barriers.
So, why is it that on the one hand merchants would take jewelery, mainly gold, instead of cash? The police indicate that this is a new trend at stores around Bridgetown that they have discovered as they investigate an increase in robberies of jewelery and cell phones. Most merchants would not normally have the means to assess the value and quality of jewelery and gold. While they may always run the risk of being passed counterfeit Barbadian dollars, they would normally have some recourse to the central bank if they could show that they were unwittingly duped. Who do they know who would willingly take the items from them, rather than being able to use local cash again in their business or depositing it into a bank account? Why take the risk that the goods are stolen or even of dubious quality? Is it that, with gold prices around US$1500 an ounce, they feel that they can speculate on the commodity? Sales, recorded by the movement of merchandise, would have value greater than reflected in cash payments, so there could be some extra profit involved in the resale of the gold and jewelery worked out well. Why would you go into barter (exchange of goods) arrangements, unless you had a clear outlet for the goods that you were taking for your merchandise? The press reports indicate 'substantial prices are being offered in the United States for gold jewelery', and the recent arrest of persons at the airport with substantial amounts of stolen jewelery may be testimony to that.
I can understand the temptation to take hard currencies, like the US dollar, Canadian dollar, British Pound, or Euro, and even the EC dollar, in exchange for goods and services, especially if the customer appears to be a tourist. One could argue that it is a matter of convenience (even good service) to accommodate the visiting foreigners' lack of local currency. (Ironically, most of these same visitors would find it mighty strange for foreign currencies to be tendered in their countries.) Again, the risk of counterfeiting is there, as well as the fact that the foreign currencies are not legal tender, which should cause some sanction from the central bank. If your business needs foreign exchange, the existence of exchange controls makes it tempting to bypass the administrative limits and get foreign exchange directly, rather than through the banking system.
I wonder if the central bank has been looking closely at these kinds of developments in recent years and especially during the recession.
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