(The views expressed in this article are the author’s own and do not necessarily reflect the editorial stance of this publication.)
“Honest scales and balances belong to the LORD; all the weights in the bag are His doing.” — Proverbs 16:11
Every Barbadian benefits from the work of the Central Bank of Barbados (CBB) every day, even though most will never step inside the institution. Yet how many people ever read its annual report?
With BiMPay now live, this is a good time to understand what the Central Bank actually does and how the public can judge whether it is doing its job effectively.
What is its role?
Think of the Central Bank as the economy’s referee, not a player. It does not exist to make a profit. Its four core responsibilities are:
1. Keep the Barbados dollar stable: Maintain the 2:1 peg to the US dollar so that your BBD $100 today buys the same amount of US goods tomorrow.
2. Guard financial stability: Supervise commercial banks and payment systems such as BiMPay to ensure transactions clear safely and efficiently while preventing financial crises from spreading.
3. Manage foreign reserves: Hold US dollars, gold and securities. These “rainy-day” reserves help support confidence in the Barbados dollar.
4. Act as lender of last resort: Provide short-term liquidity to banks facing temporary cash shortages, protecting depositors and maintaining confidence in the financial system.
How do you assess performance?
Start by reading two key financial statements: the income statement and the balance sheet.
The income statement — Its “Profit and Loss” Account A central bank is not judged by profit, but its income statement tells an important story.
Revenue: Primarily interest earned on investments, a form of interest on commercial bank reserves and seigniorage — the profit generated from issuing currency. Any fees generated by BiMPay may also appear here.
Expenses: Staff costs, currency production and distribution, and the costs of building, operating and maintaining systems such as BiMPay.
If expenses exceed revenue, the Central Bank records a loss. That is not necessarily a sign of failure. Losses often result from foreign exchange valuation changes when currencies fluctuate. While losses may reduce the Bank’s reserves, they do not threaten its existence because it is the issuer of the national currency.
The balance sheet — Its “Health Check”
The balance sheet provides a snapshot of the Bank’s financial strength.Assets: What the Bank owns. The largest asset is usually foreign reserves, followed by government securities and infrastructure investments such as the BiMPay platform. Higher reserves strengthen the Bank’s ability to defend the 2:1 exchange-rate peg.
Liabilities: What the Bank owes. The largest liability is currency in circulation. Every Barbados dollar note represents a liability of the Central Bank. Commercial bank reserves held at the CBB to facilitate payment settlements, including BiMPay transactions, are also liabilities.
The public test
When the annual report is released, ask three simple questions:
1. Did foreign reserves rise or fall compared with the previous year? Rising reserves generally indicate a stronger capacity to defend the exchange-rate peg.
2. Are operating costs, including those associated with BiMPay, being managed effectively relative to the benefits delivered?
3. Does the Bank maintain positive capital and reserves? If losses erode its capital base, the government may have to recapitalize the institution, meaning taxpayers ultimately provide support.
The Central Bank’s financial statements are more than accounting documents. They are a dashboard showing how well your money and payment system are being protected. Read them, and you will be better equipped to judge whether the referee is still fit for the game.
Dr Basil Springer GCM is a corporate governance adviser. Email: basilgf@marketplaceexcellence.com. Previous columns may be found at www.nothingbeatsbusiness.com.
