Once upon a time, hundreds of years
ago, money had intrinsic value. Coins
were minted in gold or silver. Money was
then a physical item. This money got its
value from the worth of the bullion it represented. If the coin said it was worth $1.00, then it
had a dollar’s worth of gold in it. This
was straightforward. But the weight of
the coins was inconvenient for carrying around.
First the Knights Templar during the
time of the Crusades, and then various governmental affiliates began to issue paper
notes to the value of the gold or silver they kept in their vaults. They promised they held gold or silver to the
value of the notes they issued. Those
notes were said to be “backed” by gold or silver. Not every country made sure their notes were
backed by bullion. Such currencies were
very unstable and frequently collapsed.
In 1971 and 1972, the US and British
governments moved away from backing their currencies with bullion. Like other issuers of most modern paper
currencies, they began to print money as needed. The Eastern Caribbean dollar is a classic
example of a currency that is not backed by gold or silver. There is no requirement for the notes of the
EC Central Bank to be backed by either bullion or foreign currency.
These unbacked currencies are said to
be “fiat” currencies. “Fiat” is a Latin
word that can be translated as “let it be done”. Our currency only has a value because the
Eastern Caribbean Central Bank says it has that value. The Central Bank simply said, “Let these bank
notes we are issuing have the values we print on them.” Unlike money backed by gold or silver, there
is no real value to fiat money in itself.
Once everyone accepts the fiat of the Central Bank, all is in
order. Problems only arise when people
begin to have doubts about the value of the currency.
One result of this fiat system is
that currencies risk losing value due to inflation. They even risk becoming worthless in the
event of hyperinflation. In some
countries, when the people lose confidence in the value of their money,
inflation can double in a single day. There
is then no acceptable medium of exchange.
People refuse to accept the currency, and all commerce collapses or
turns back to barter.
Has the British colony of Anguilla
found a way to issue fiat money? I ask
the question because over the past two years the Government of Anguilla (GoA)
appears to have been printing money to meet the government’s every need to look
good. Its expenditure is not connected
to how much money it can raise. I am not
sure that is legal or sensible. Why have
the Foreign and Commonwealth Development Office (the FCDO) and the Central Bank
permitted this financially irresponsible state of affairs to develop unchecked?
Governments throughout the Caribbean
region notoriously view their Social Security Fund as a cash cow to be raided
at every emergency. Anguilla is no
different. As part of the “banking
resolution” back in 2016, our Fund took its first major hit. Government borrowed over EC$200 million from our Social Security Fund to
buy the two cash-strapped local banks. I
am not aware of any effort to repay any part of this borrowing.
In 2020, at the height of the recent
pandemic, government raided the Fund again.
Contrary to the purpose of the Fund, government used it to pay unemployment benefits to every
unemployed person in Anguilla who had not contributed to Social Security. or
who had not contributed the required fifty weekly payments. These monthly payments were at first
EC$800.00 and then EC$1,000.00. This
freeness went on for over a year. Social
Security was encouraged to create a programme to pay the same unemployment assistance
to persons who were social security contributors. All these unlawful payments were, I
understand, legalised after the event by having the House of Assembly approve
them.
The Fund has now been sucked dry. There are few alternative sources of ready
money left for government to give away.
According to an article in The
Anguillian Newspaper last week, a recently concluded Social Security conference
saw the experts recommending that we increase contributions from 10% to 12% as
the Social Security Fund has almost been depleted. I am not surprised.
Starting in February 2022, the
Russian/Ukrainian War resulted in sanctions and blockades. The prices of goods skyrocketed. The GST Act came into effect in
mid-2022. The result was further rising prices. Inflation is sky rocketing in Anguilla.
To help with the rapidly rising cost
of living during the past year, GoA is imitating the US and UK
governments. It has been issuing EC$500.00
food vouchers to every person over 70 years of age in Anguilla. This money was not budgeted for. Indeed, there was no public consultation on
the need to give away money. There was
no discussion of the merits and demerits of giving the money to every
70-year-old in Anguilla. There was no
public discussion at all. The news item
on Radio Anguilla to the effect that GoA had taken the decision to grant this
largesse caught us all by surprise.
GoA simply announced one day that
every person in Anguilla over the age of 70 was entitled to go to the Inland
Revenue Department (the IRD) and collect a voucher for EC$500.00. The voucher could be presented in any grocery
for food or liquor. It was later announced
that we could go back to the IRD and collect a second EC$500.00 voucher. So, the total amount of the gift to each of the
over-70s amounted to EC$1,000.00.
My guess is that there are about
1,000 persons over 70 years of age in Anguilla (local and ex-pat). That means that these two unauthorized gifts must
have cost about EC$1 million. This money
was not in the budget. Perhaps this
unauthorized expenditure from the Consolidated Fund was subsequently made
lawful by an Act of the HoA. That would
be easy to do as the GoA controls the House (most of the members of the HoA are
either cabinet ministers or junior ministers in the GoA.
Subsequent authorisation of an
illegal government payment (if that is what it was) is not the point. When the budget was prepared, no thought was
given to raising the money to make these gifts.
It was not a budgeted item. It
appears GoA was permitted by the FCDO to spend unlimited amounts of money that
was not budgeted. I suppose because they
had done the same thing in the UK, they could hardly object. I am not sure I approve.
The next unauthorized government giveaway
was a surprise gift of two amounts of EC$500.00 paid to each household account
with the electricity company (ANGLEC). This
money was deposited directly to ANGLEC. Note
that this handout was not limited to Anguillians. Nor were the recipients required to be
certified as “needy” of financial assistance.
Nor was it limited to persons aged over 70 years. It was paid indiscriminately to all residential
accounts at ANGLEC, foreign or local, retired or working, millionaire or
indigent. I am not sure I approve.
The gift was ours whether we wanted it
or needed it. We had no say in the granting
of this largesse. If we objected to it
as being illegal and unnecessary in our case, we could do nothing about it.
It was not a budgeted expenditure. It was not authorised by any Act of the HoA. Nor was it a negligible sum of money. There must be some 5,000 households in
Anguilla. The cost of this gift,
according to my calculation, should amount roughly to EC$5 million. In my view, not being paid to needy
residents, it was a blatant case of vote-buying for the next general
elections. Will it work?
All the evidence is that Western
economies are presently in an economic recession. By next year, consumer confidence is forecast
to collapse. The UK and other major
economies will go into a depression.
Unemployment will increase substantially. The real value of wages is expected to fall
by about 50%. Tourism will temporarily dry
up in Anguilla. Hotel companies will
collapse. Fewer workers will be
employed. Poverty will spread over the
island. But there will be no more gifts
of free money to bail us out.
And now we learned last week that GoA
will be issuing another unauthorised EC$500.00 food voucher to all seniors,
millionaire or otherwise, on the island.
This generous gifting could not happen without the express approval of
the FCDO. They must by law sign off on
all major expenditure by GoA. It is as
if the FCDO have given GoA permission to print our own fiat money. Otherwise, GoA could never find the wherewithal.
But what will the consequences of all
this munificence be? We suspect one of
them will be increased taxation. At the
end of the day, the money must come from somewhere. The ministers are not giving away their own
money. It is more likely than not the
workers of this country who will have to pay for all the handouts to the
seniors.
Cowrie shells were currency in
certain parts of the world many years ago.
With inflation high and about to increase, and given the rate at which the
dollar’s value is sinking, should we be thinking about converting our savings
into cowrie shells before the end of the year?
