Dennis Jones is a Jamaican-born international economist, who has lived most of the time in the UK and USA, and latterly in Guinea, west Africa. He moved back to the Caribbean in 2007. This blog contains his observations on life on this small eastern Caribbean island, as well as views on life and issues on a broader landscape, especially the Caribbean and Africa.







**You may contact me by e-mail at livinginbarbados[at]gmail[dot]com**

Saturday, April 17, 2010

Incidious Trend?

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.


Sargeant said...

You describe your wife as a “decent economist”? Anything less than brilliant should have you sharing quarters with the dog. How perchance would she describe your professional acumen?

Anyway I digress, I think that you were charitable when you describe it as bartering how about another word “fence”. If you get my drift, I don’t want to go into the ramifications of “fencing” but curious folk could look up the meaning.

This is a new twist on something that has happened in the past in Guyana Due to rigorous Exchange Controls in Guyana many people who left those countries couldn’t get their money out so their relatives in Guyana would buy Gold with the money (Guyana produces small quantities of Gold) and then wear the Gold out as personal jewellery. Once in North America they would sell the Gold and recover some of the money.

There were other variations of this theme with other Guyanese and Jamaicans on how to get around the Exchange Control approval, if you’re a good boy and give the wife some flowers as an apology perhaps I’ll mention it in future.

Happy groveling.

Dennis Jones said...


'Decent' has about 5 meanings and all of them are appropriate and fitting. I'm only a half-decent economist.

I cannot go beyond bartering that easily because I would need to know motive and passage of the goods and money. But, I am familiar with the term and practice of fencing.

I'm also familiar with the kind of practices you describe occurring in Guyana, as I've worked there and in Guinea, where I also worked for a while. Both were a source of gold and diamonds and both are relatively easy to transport in unprocessed form, especially with a long and porous border with 6 countries in the case of Guinea.

I'll happily trade my stories for yours. Should I say we can barter over them?

Sargeant said...

I don’t want to quibble over semantics and perhaps you want to be modest about your spouse’s professional achievements but I happen to have a Webster’s also and I wouldn’t use decent, how about competent?

The following used to occur and I am not sure if it still happens but another scenario involves wealthy individuals immigrating from Jamaica or Guyana with significant funds in the Bank which they are not allowed to take. The individual gets to know members of his community residing in his new country or he has “spotters” who are familiar with people who are sending remittances to their relatives “back home”. When these people purchase Money Orders or Drafts (these were the days before the Western Union money transfers etc.) they would turn the Money Orders or Drafts over to the Wealthy Individual who would arrange with relatives left behind to pay the recipient from the funds left “back home” with the local currency equivalent of the instruments at an inflated Exchange rate.

The Instruments never leave North America and are deposited to an account in the new country.

Do you know how much funds you can “transfer” if you get enough people?

Simple yet ingenious

Dennis Jones said...

I won't quibble either: I know what I meant and competence alone does not cover it.

The money order/drafts scheme is pretty common, and variants on it occur in many places that have either exchange controls or problems in getting access to hard currencies. Merchants or those who have reason to travel to countries that have convertible currencies are often well placed, and can build up assets in foreign bank accounts that can be used without the cash ever entering their countries of residence. There are lots of networks that can benefit from such arrangements. Some of them actually facilitate legitimate/legal economic activity, but they can also foster illicit activities. From a technical point of view, some of this can be measured, eg by looking at balance of payments data and discrepancies between imports, exports, and financial flows. Banks/financial institutions are often obliged to report certain movements to relevant tax or supervisory authorities, which may lead to them being halted (may depend on critical mass) or very closely monitored. Much of that may never reach the public's ears/eyes.