Wilberne Persaud, Financial Gleaner Columnist

Persaud

Ever since Jamaica opted to leave the West Indies Federation and Eric Williams issued his famous "One from 10 leaves zero" statement, efforts at any type of Caribbean integration have reflected a kind of love-hate relationship.

The regionalistsamong us always cite the beacons of our cooperation: University of the West Indies (UWI), cricket and the Met Services.

The UWI, despite host-country funding of individual campuses and erosion of the vice chancellor's hands-on responsibility for and directing role of the institution as a whole, is still 'regional'.

We are still unified in cricke plagued by regular bursts of insularity - my fingers almost tripped and typed insanity - and of course, there are numerous arrangements of what is termed 'functional cooperation'.

These run the gamut from movement of labour, to customs regime standardisation and the like.

One of the issues on the table today is the question of monetary cooperation. Two currencies, the Jamaica and Guyana dollar have experienced the most severe pressure over the years and have been devalued significantly versus the U.S. dollar peg.

The Eastern Caribbean (EC) dollar has, surprisingly for some, maintained its value despite the islands' lack of bauxite, oil or other major natural resource, economic shocks over the years, and the imminent demise of the banana market and price protection regime offered by Europe.

So what accounts for the EC dollar's long-run stability? Might it be that Governor of the Eastern Caribbean Central Bank, Sir Dwight Venner, is particularly astute and far-sighted? Is it that the technocrats of the bank, unlike ours, are wizards at what they do? While both these speculations could be true, the simpler explanation seems to me to have the more power: no one government, or rather political regime, could institute central bank deficit financing of its budget independently.

Multi-state regime

In other words fiscal conservatism or financial prudence is built into the multi-state regime which is the Eastern Caribbean Central Bank.

If we accept that explanation, might monetary union with the rest of the region be a good thing for Jamaica? Or is this too simplistic a way of framing the problem? I think it is really.

The reason is that thereare two kinds of questions, answers to which shall have to be provided. The first set has to do with economic conditions and policy in the individual countries; the others relate to issues of institutional governance and practice - the mechanisms to give effect to the vision.

Monetary union means we move from five to one central bank.

Clearly a unitary central bank reduces the ability of each separate country to use monetary policy for individual 'fine tuning' of its economy. Also, and perhaps more importantly, the individual economies are in different situations relative to internal and external balance - the condition of inflation and employment at home and the situation of balance or otherwise in its balance of payments position.

Consideration of these issues should determine both the kind of monetary cooperation that is best and the timing of such cooperation.

So shall there be a common Caribbean currency or a fixed exchange rate within as well as a fixed exchange rate with the rest of the world? Or shall it be a fixed exchange rate within and a floating rate with the rest of the world? For these decisions we have recent and ongoing experience of Europe that suggests some guidelines.

The United Kingdom has for some time been convinced it needs Europe but not the euro — it keeps sterling.

Would Trinidad and Tobago feel the same way? Should the decision be favouring monetary union, when would it take effect? And if we agree on one central bank where will it be physically located? How shall it be staffed? Who shall determine the choice of Governor from time to time?

Shall it be independent of the political directorates of the individual countries? Or if there is to be oversight, how will differing positions be weighted or adjudicated if this is the case? Will decisions require unanimous consent?

Regardless of all these complexities - they are only steps up the mountain really - I generally tend to the view that monetary cooperation i useful for the region. But it is not something to enter into lightly.

Technocrats may work their magic and determine which regime works best under what circumstances: there is ample theoretical and empirical material available.

But, at the end of the day, commitment to the principle of unity and its 'goodness' will be the overriding factor in success of any such venture.

wilbe65@yahoo.com