Time for a Single Caribbean Dollar

Serious attention has to be given to the creation of a single currency by the countries of the Caribbean Community and Common Market (CARICOM) that earlier this year signed an agreement to establish a Single Market. If they don’t, the single market will begin to unravel as free movement of goods and services fails to bring significant benefits because transaction costs remain high and exchange rates continue to foster uncertainties.

A monetary union and a single currency in the countries of the Caribbean Community and Common Market (CARICOM) would be a boon to commercial operations in the region from the smallest trader to the largest corporation. It would also be a delight to multi-destination tourists and to the ordinary CARICOM citizen traveling from one country to another.

CARICOM countries need look no further than within their seven smaller member states, the countries that comprise the Organization of Eastern Caribbean States (OECS), to witness some of the benefits of a currency union and single currency.

In the OECS countries, cross border investment has increased, the currency is the strongest in the region, transaction costs for business is less than they are with other CARICOM countries, and the people of the area are able to travel without the burden of having to change their money.

During the recently concluded Cricket World Cup tournament in the Caribbean, the absence of a single currency in the much vaunted “single economic space” was a glaring weakness. Persons traveling from one country to another, except within the OECS, found that they had to endure the inconvenience of changing money at every destination, often losing heavily on exchange rates.

In a recent paper to CARICOM Heads of Government, noted Economist, Norman Girvan, observed: “Among the advantages of monetary union are reduction of transaction costs of intra-regional trade, investment and remittances; increased price transparency, reduced exchange rate uncertainty, enhanced efficiency of financial markets, and a deepened sense of regional identity”.

And, Barbados Central Bank governor, Dr. Marion Williams, has warned that the United States dollar might emerge as a default common currency if CARICOM countries do not move toward a single currency.

In 1992, another Barbados Central Bank official, Dr Delisle Worrell, had cautioned against adopting the U.S. dollar as legal tender, saying that the lack of credible, convertible Caribbean currency “may give the U.S. an enormous political lever over countries which are so dependent that they should maximize whatever opportunity avails to increase their room for maneuver”.

To be fair to the U.S., no person in authority in the U.S. has suggested that CARICOM countries should opt for the U.S. dollar as their currencies. But, the reality is that cross-border transactions among CARICOM countries are conducted in U.S. dollars, and in the absence of a single monetary authority and a single currency, the U.S. dollar is the measure of exchange.

On all counts it is highly desirable for CARICOM countries to establish a single currency. The West Indian Commission in its 1992 report, “Time for Action”, had suggested to CARICOM governments that “immediate steps should be taken towards the goal of a common currency”. And the Commissioners went on to propose that it should “be attained on a phased basis and under arrangements which take account of existing exchange rate differentials”.

In reality, the seven OECS countries, Barbados and Belize could probably establish a single monetary authority and single currency within a short space of time. Their exchange rate and other economic factors are close enough to merge with little disruption.

Other countries –Trinidad and Tobago, Jamaica, Guyana and Surinam- could operate on a parallel track with the single currency area until they satisfy criteria to join.

A reference of how this could be done exists now in the European Union (EU). Fourteen EU member countries are not part of the European single currency, the euro, or the common central bank. They are required to achieve “sustainable economic convergence with the euro area”. This includes price stability, a low level of public debt, and a stable exchange rate. In the meantime, agreements have been worked out to facilitate their trade, investment and currency conversion with the other thirteen EU members, but their costs are higher.

A single monetary authority and a single currency for CARICOM countries could bring enormous benefits for more investment, greater trade, better prices for goods and services and easier movement of people for tourism and commerce. The CARICOM single market, and the single economic space would then assume far greater relevance to the lives of Caribbean people.

It is time for a single Caribbean dollar.

Sir Ronald Sanders is a business executive and former Caribbean diplomat who publishes widely on small states in the global community.