Senior economists at the International Monetary Fund (IMF) Gita Gopinath, Luis Cubeddu and Gustavo Adler have come out in warning against a recent surge in monetary easing from both advanced and emerging markets.
In a blog published in late August, the economists say the trend is growing among nations who are relying too heavily on monetary policy easing and argued that currencies are “neither the hammer nor the nail” in efforts to reinvigorate economies.
Notably, they said, with global growth slowing , many central banks have recently cut interest rates to prop up their respective economies. Cutting interest rates reduces the cost of borrowing and is expected to spur investment.
” Island currencies once worked well when they were backed by an equivalent value of Sterling, in a global system of fixed exchange rates.”
However, in their blog Gopinath, Cubeddu and Adler warned that the recent surge in monetary easing from both advanced and emerging market economies has created concerns
Meanwhile, DeLisle Worrell, former head of the central bank of Barbados and currently a principal in consulting group DeLisle Worrell and Associates, Inc, is suggesting that “currencies of Caribbean countries have now outlived their usefulness, and have become a liability.”
Worrell opines, in a presentation available online, that island currencies once worked well when they were backed by an equivalent value of Sterling, in a global system of fixed exchange rates.
He stated, “In contrast, nowadays payments are made mostly by electronic communication, credit and debit cards, cheques and drafts, with settlement over digitized bank accounts. In today’s world an owned currency has become a liability for small economies.”
He stated that the local currencies were “limiting access to international goods and services, exposing residents to risks of currency devaluation and inflation, eroding the value of domestic savings, increasing economic inequalities, providing a tool for unproductive government spending, and diverting attention from the need to increase productivity and enhance international competitiveness.”