Laing: No fear over dollar parity
Claims that The Bahamas’ accession to the World Trade Organization (WTO) could threaten the parity of the Bahamian dollar against the U.S. dollar are unjustified, The Bahamas’ Chief WTO Negotiator Zhivargo Laing said yesterday.
“…That fear would be unjustified because the report didn’t say that and the authors of the report have refuted that that’s what they said,” Laing said.
“And, in fact, my own knowledge and experience would lead me to advise that that is not a fear that they should have at all.”
Laing’s comments came amid public concern after an Oxford Economics report for the Bahamas Chamber of Commerce and Employers’ Confederation (BCCEC) asked if “the associated costs” of liberalization “are worth the benefits to the economy from maintaining the currency peg”.
The report, released earlier this week, presented two likely scenarios for The Bahamas’ accession to the WTO. The first scenario represents accession without any significant policy changes by the government. The second speaks about outcomes if WTO accession happens in the context of a broader policy reform to address structural weaknesses in the economy.
In the first scenario, the report said, “…The current account deficit is likely to widen significantly. While we expect that additional FDI inflows would fund part of this gap, the implied shortfall in funding averages around $100m a year.
“This scale of shortfall would have the potential to deplete the Central Bank’s estimated usable external reserves of $522m over this timescale, forcing a reappraisal of the relative costs and benefits of maintaining parity to the U.S. dollar.”
The report’s second scenario explains, “The impact on the current account is more muted, meaning that associated repercussions on the foreign exchange situation would be less acute than in the WTO accession scenario, at least initially. Our estimates indicate that increased FDI inflows broadly counterbalance the widening of the current account in the years 2020-25.
“However, the continued widening of the current account in subsequent years would eventually outpace these FDI inflows, implying that foreign exchange policies may still need to be reviewed in later years.”
Laing, however, insisted that the future of the exchange rate of the Bahamian dollar should not be a concern.
“Anytime you want to know whether The Bahamas’ currency is in danger of devaluing, you look to the reserves, because as long as those reserves are healthy enough to support the parity, there are no issues whatsoever,” he said.
He added, “We’ve been over that one billion dollar mark and well able to support our requests for U.S. dollars for trading, so that’s not an issue.”