As a result of the perilous state of the Barbados economy, accentuated by a recent 3 notch downgrade by Moody’s and a follow up visit in June by the IMF after a worrying Article IV Consultation in December 2013, the conversation about devaluation and management of government debt has become a topic of national interest. In the public’s interest BU highlights Walter Blackman’s perspective on the two issues which he shared on another blog.
Hants – Currently $1 Canadian = $1.84 bds. Cheffette all chicken roti cost $5.50 Canadian. So after a 5 to 1 devaluation the roti will still cost $5.50 Canadian but $60 Barbados. Please correct me if I am wrong.
Walter Blackman – Hants please allow me to reconstruct your question correctly. A Cheffette roti currently costs BDS$10.12. Since Canadian $1 = BDS$1.84, it would take Can$5.50 to purchase the roti. If the exchange rate were changed to Canadian $1 = BDS$5, the same roti that sells for BDS$10.12 would now cost only Canadian$2.02. In short, a devaluation would cause a product manufactured or produced in Barbados to become cheaper to Canadians. The economic argument usually made is that this cheaper roti price would induce Canadians to buy so much more rotis that Barbados would ultimately earn more FOREX selling the roti at $CAN 2.02 rather than at $CAN$5.50.