This final article on correspondent banking, de-risking and the labelling of Caribbean countries as tax havens focuses on the long-term measures that can be implemented to counter the effects of these challenges on our already vulnerable economies.
The United States is the largest economy in the world. While this will change soon, it would still leave the US as the second largest economy for quite some time.
The US dollar is the principal trading and reserve currency in the world. Even our trade with other countries (such as oil imports) is overwhelmingly conducted in US dollars, and often using US banks. This decisive role as the principal world trading and reserve currency will also be lost in the future, just like Britain lost this role/status after World War II. But this remains today’s reality, and it will be some time before this changes.
In addition, the US remains the number one market for Caribbean exports, especially tourism. Overall, our principal trading partner is the US; yet another reason for our daily use of its banking system.
Further, a very large numbers of our citizens live in the US, and this is the basis for the substantial remittances which our people receive from their relatives working there. This factor alone makes Caribbean economies vulnerable to any de-risking; any cut-off in correspondent banking relationships.
It should also be noted that the US has a history of throwing its weight around.
No discussions, no compromises: they pass a law, you carry it out. If you don’t, they will financially “execute” you by means of sanctions such as “no access to our banking system”.
This is the usual modus operandi. The Caribbean’s small and micro states are being held over a barrel, and have little or no wiggle room in their dealings with the US behemoth with regard to that country’s demands on our banking and financial sectors.
Nevertheless, there are measures which can be taken within the context of our extraordinarily weak bargaining position.
Understandably so, these long-term measures are intended to increase our economic and financial independence, but with minimal or no immediate benefits.
The measures being proposed include trade diversification; diversification of our tourist markets; establishing, over time, agreements for trade-payments in currencies other than the US dollar, with an increasing number of countries; and instituting not only a wider network of correspondent banking relationships with financial institutions in many more countries, but also obtaining their assistance in better regulation of our financial institutions.
Clearly, our efforts to protect our important banking and financial sectors have to be multifaceted and must seek to address the present as well as future challenges we face.
But we must first properly contextualise the situation facing us or risk coming up with the wrong strategic response and by extension mix of policies to mitigate as well as increase our economic independence.
The issue at hand is way too serious for us to make any errors in our strategic responses.
Email: bfrancis@uwi.edu.bb