REPORT #541 October 2002
RICK of Corozal town, WONDERS WHY WE HAVE BELIZEAN CURRENCY? CAN YOU FIND SOME FLAWS IN HIS THINKING?


Produced by the Belize Development Trust

After I had been here a year or so, I started asking people "why do we -- Belize -- have our own money?" Most people couldn't --or wouldn't -- answer. I puzzled over it for a couple or more years, and have collected some facts that I'd like to share with you.

Several Latin American countries have dropped their own currency and adopted the US dollar. Why would they do that? Because nobody wants their pesos, or cruzieros or whatever. They need to buy out-of-country goods, and they need US Dollars to do that. (Realistically, it is the only nearly universal currency today. Try to exchange Euros in Latin America. Oops!)

The Belize dollar certainly fits that description -- it is good only in Belize, for Belizean goods, and marginally at the border, in exchange for Mexican Pesos. (Altho the BZ dollar is pegged to the US dollar at 2 to 1, money changers penalize BZ money holders by 10-20%, depending on the day.) So, why don't we just abandon the BZ dollar?

Here are some considerations to think about. These regard Ecuador, which completed its transition to the US Dollar in March of last year.

BACKGROUND

Ecuador has long benefited from its geographic location between Peru and Columbia. For many years, most of the cocaine packaged and marketed by Columbia was actually grown in Peru, and Ecuador made enough by being the conduit for this traffic that the economy was sustained, if it didn't actually flourish. When the US DEA successfully shut down the growing of cocaine in Peru, the Colombians began to grow their own, and Ecuador was out of the loop. A few years, and Ecuador was on the economic ropes.

In March 2001, Ecuador completely converted over to the US Dollar. The economic benefits and drawbacks are complex; you can read an analysis here (http://sceco.univ-aix.fr/cefi/actualites/salvadormarconi.pd f)

However, without getting too analytical, here are a few outcomes, both amusing and instructional to us here in Belize.

1. Currency. 20% of Ecuadorians are functionally illiterate. They depended upon the color of the various denominations of the Sucre bills to tell the bills apart. But, US dollars are all the same color! Big problem.

2. Coins. US coins generally don't have an amount on them! Ecuador decided to mint their own version of the nickel, dime, quarter, to use instead of US coins. These coins were exactly the same size as the US coin, but had big nombres on them. Now, these Ecuadorian coins are showing up in parking meters and vending machines in the US!!

3. Dollars. The Colombians, ever enterprising, are taking advantage of the Ecuadorian's unfamiliarity with US currency. They are counterfeiting US bills and passing them easily in Ecuador.

4. Investment dollars. Contrary to most Latin American countries (including Belize) Colombia has LOTS OF DOLLARS. (Payment for Juan Valdez' coffee beans? Probably not.) Now that Ecuador accepts US dollars "for all debts, foreign & domestic" Columbians are buying up Ecuadorian property at an alarming rate. (Using both real and counterfeit dollars!)

LESSONS FOR BELIZE

To go back to my original question -- Why do we have our own money) is...

  • Belize is printing its own money because it can! It's not really worth anything anyplace but Belize, but that's enough. We can buy everything we make (or already have) in Belize with BZ dollars. If we need more, we can print more. Within reason. And we couldn't do that with US dollars. (Unless we got some Colombians to help.)
  • Why do we need US dollars? So we can buy things we don't make in Belize. So far, there is a reasonable exchange of US dollars for Belizean dollars, so that there are enough dollars coming into Belize to purchase the foreign goods that we don't produce ourselves. (We also note that Gringo Retirees and Tourists create this demand, and feed it with the US dollars they are injecting into the economy.)
  • The Free Zones help this process, by injecting more foreign currency -- both Pesos and Dollars -- into the Belizean economy. (As an aside, I can't understand why the free zone petty officios harass Gringo tourists who want to spend US dollars in the zone. But they do.)
  • Currently, money laundering is scrutinized by the Central Bank because large money conversion transactions are generally quite visible. Much of this visibility disappears if Belize converts to the US dollar.
ANOTHER GENERAL QUESTION

Why do countries exchange currencies? Because they need something that's produced in that country. e.g. People want dollars so that they can buy American goods they can't get anywhere else. Example: Computer CPUs. Motherboards from China. Chips from Japan. CPU's -- US.

So, Belizeans want US dollars. What does the US want from Belize?

The one thing that Belize has that every one wants is space. Convert to the dollar, and people with lots of US dollars will be buying that space. (Gringos or Columbians, which is worse?) Is that what you want?

Much of the desirable coast land is already owned by Gringos. Most of the space that's left --almost 50% of Belize) is currently protected. The tug-of-war between the "greenies" and the greenbacks will be interesting to watch.

I solicit your comments and suggestions,

Sr. ric

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