SXMElections.com

PHILIPSBURG--“If it ain’t broke, don’t fix it.” This was the view of Aruba Central Bank President Jeanette Semeleer on discussions about the option of dollarization for St. Maarten. She was speaking at an Advisory Council symposium on the advantages and disadvantages of dollarization, held at University of St. Martin (USM) on Thursday evening.

Semeleer told the audience, which included public and private sector representatives: “Islands [Aruba, Curacao and St. Maarten] have done well under the pegged-currency regime” and dollarization is “not one-size-fit-all” option for countries.

A country, such as St. Maarten, opting to abandon the use of the Netherlands Antilles guilder or institute its own currency in favour of completely using the United States dollar is “not a magic wand to solve all issues.”

   The current pegged-currency system such as the fixed exchange rate of the guilder to the US dollar has its advantages. Such a system allows for countries to still have fiscal control over their economic policies.

The banking expert said dollarization “doesn’t create fiscally responsible politicians.” Transparency is still very much needed.

Dollarization offers no buffer for the country, that is, if the country falls short of the US dollar, government would have to resort to spending cuts; such cuts would trigger economic consequences.

Further, the Central Bank’s role as lender of last resort for commercial banks “will disappear.”

Semeleer advised St. Maarten, that should the country opt for dollarization to establish a monetary authority to fill the gap of the redundant central bank and to maintain some currency cushion.

The pegged-currency system of the Aruba florin to the US dollar “has worked for Aruba,” she said.

Dollarization has had severe effects on the Caribbean Netherlands of Bonaire, St. Eustatius and Saba. Since the changeover to the US dollar consumer prices and inflation on those islands have “increased.”

Semeleer said a 2012 report on the state of the Caribbean Netherlands pointed to dollarization as the cause of price rise.

The second keynote speaker Royal Bank of Trinidad and Tobago Board Director Economist Terrence Farrell said a country with a pegged-currency system has the option to change the exchange rate to be competitive; however, many countries give currency devaluation wrong.

Farrell also warned that complete dollarization results in “zero policy independence” for a country.

As St. Maarten contemplates whether to dollarize, Farrell said the country’s geographical and economic ties to the US have to be taken into consideration.

The country has to also look at the lower euro rate and its impact on the economy, the opening of Cuba and the need to focus on the quality of service and destination experience, Farrell said.

   Attorney Richard Gibson Sr., symposium moderator, urged caution when considering the use of the US dollar as the country’s main currency. He added that users of the guilder “should know wherever you go in the world, guilder is not loved.”

In the discussion following the presentation, an audience member inquired about what could be done about the refusal of the guilder by businesses, specifically a hotel and a medical school, in favour of the US dollar. She was encouraged by Prime Minister Marcel Gumbs to report the businesses immediately to Finance Minister Martin Hassink who was also in the audience and they would “take care” of the situation right away.

The Netherlands Antilles guilder is St. Maarten’s legal tender and by law cannot be refused in exchange for products and services.