Central Banks and their independence

Last Friday, DeLisle Worrell, the Governor of the Central Bank of Barbados, was fired by that country’s Minister of Finance. Exactly two months before, the Government of Trinidad and Tobago sacked the Governor of its Central Bank, Jwala Rambarran.

Worrell’s February 24 dismissal from the job he had held for eight years came after weeks of tension between him, his Board and the Barbados Government (see story on page 9). While Worrell’s management style seems not to have endeared him to those he worked with, the matter of his advice to the Minister of Finance in relation to Government spending and the need to repair the Central Bank’s reserves also seems to have played a role in his being asked to go home.

In Trinidad and Tobago, Rambarran was sent home on December 23, 2016, in a move that has been described as unprecedented. Just before Rambarran was fired, the Prime Minister of Trinidad and Tobago had said that a government ought to have confidence in any central bank governor and later he said Rambarran was effectively creating problems for himself by his actions during his time as governor.

Of interest is that the tension between both Governments and their Central Bank governors comes at a time when those countries are facing serious challenges in relation to their foreign exchange reserves. Just last week, Prime Minister Dr Ralph Gonsalves spoke of the difficulty being experienced by Vincentian traders when they try to obtain foreign exchange for goods sold in Trinidad and Barbados. It is entirely conceivable that the foreign reserves situation in these countries and differences of opinion as to what approach should be taken in response to the challenges is a major contributing factor to the fractures in relationships between the Central Banks and their Governments.

But ideally, central banks, which determine the monetary policy of a country (or in the case of the Eastern Caribbean Central Bank, a region), should be independent and free from direct political or governmental influence in the conduct of policy.

So far, we have not heard of any foreign exchange challenges in our Eastern Caribbean Currency Union and we hope there are none, despite the difficulties being experienced by many of the economies in the sub-region. But Barbados and Trinidad and Tobago are two of the major economies of the region and any serious upheaval in their economies will have a negative effect on us in the Eastern Caribbean, either directly, as is already being experienced by our inter-island traders, or indirectly as the effects ripple across the islands.

It is hoped that going forward, cool heads and common sense will prevail and that ou central banks, in consultation with our governments, will make decisions which result in the long-term economic health of the region, even if the decisions are not politically expedient.