Three Ways Barbados Maintains its International Reserves

Foreign exchange is the lifeblood of Barbados’ economy. Why? Because so much of what we use is imported, and to pay for those imports, we need to use foreign currency. Moreover, that foreign exchange, in the form of our international reserves, is what helps us to keep our exchange rate of two Barbados dollars to one US dollar.

Given how much we rely on imports, and how critical upholding the exchange rate peg is to the success of our economy, it’s important to know how Barbados maintains an adequate level – at least 12 weeks – of international reserves.

Borrowing

One way is to borrow, either from international financial institutions or on the capital market. Borrowing from abroad can serve two purposes,” reveals Central Bank of Barbados Governor Cleviston Haynes. “One is to buffer the reserves, but it also helps with financing of Government.” While some borrowing is necessary, Governor Haynes cautions “you don’t want your reserves build up to be based solely on borrowing.”

Earning

Much preferable to borrowing is earning. Sectors like tourism, international business, agriculture, manufacturing, and the export of services all earn foreign exchange. But the success of these sectors depends on Barbados’ ability to compete with other countries that offer the same thing.

“You are operating in a world where all countries are competing, and you want to be able to sell the goods and services you have. That does not just mean price competitiveness; it’s really the quality of services you provide. We are a services-based economy… therefore, it’s the quality of the service, the reliability of the service.”

Governor Haynes used an analogy to drive home his point. “In much the same way that you would buy a refrigerator you believe has a good reputation for reliability, likewise you would buy services that you believe reach the standard you want.”

Put simply, when it comes to our ability to earn foreign exchange, competitiveness is key.

And that competitiveness comes, to a large extent, from the actions of average Barbadians. “You have to put your best foot forward at all times, to be as productive as possible. That is what will enhance the overall competitiveness.”

Foreign Investment 

Competitiveness is also critical in securing foreign investment in Barbados, which is another way we can build up and maintain our international reserves.

Given the make-up of our economy, much of that investment is tourism-related. “What you tend to see is persons who are in that area are often looking for new markets, so we collaborate with potential investors, selling them on what Barbados has to offer. And if we get the right mix, we are able to bring them here.”

Governor Haynes notes that this type of foreign investment has several benefits. “It brings in, initially, foreign exchange, it enables a pick up in construction activity, but it also creates jobs in the long-term.”

At the end of the day, because ensuring Barbados always has enough foreign reserves is such a key element to our economic stability, safeguarding them requires a multipronged approach. “Foreign investments are critical, and it has to be alongside the earnings and judicious borrowing from time to time. That is how you maintain your reserves.”