delisle worrell : central bank of barbardos – serving the nation welcome remarks by dr delisle worrell, governor of the central bank of barbados, at the frank collymore literary endowment awards, bridgetown, 7 january 2012. * * * in my introduction of professor cardinal warde, who gave last year ’ s sir winston scott memorial lecture, i paid tribute to the vision of the central bank ’ s first governor, sir courtney blackman, who recognised that the bank was more than a financial institution ; it was an organic part of the society and its culture, in its every dimension. governors that followed him have remained faithful to that vision. if anything, over the years we have fortified our vision of full involvement in the culture and intellectual life of our country. as you may have heard, the bank has set out to become a centre of emotional intelligence, and to guide our behaviour accordingly. emotional intelligence speaks to the realisation that the organisation is its people, and its performance requires sensitivity to their humanity and aspirations. our consultant in this endeavour, eliseus joseph, recently referred me to an article in the nov 2011 issue of the harvard business review entitled “ how great companies think differently ”. one characteristic of great companies, those who endure and thrive over the years while others fail, is said to be “ concern for public 2 issues beyond the boundaries of the firm,... consider ( ing ) societal interests along with their business interests ”. what we have come to understand is that the central bank is a community of individuals, serving the wider society that is the nation, and we must serve the nation in whichever ways our resources and varying talents permit. our mandate is economic and financial policy, but we do not conduct those policies in a vacuum ; we are to advise on policies for the betterment of the barbadian society, and all its members. as i have been at pains to emphasize on more than one occasion, the outcome of any policy action depends on the individual responses of every producer and every consumer. that is why the bank, and all of us who work for the bank, must be fully involved with the life and culture of our society. the fcle awards must therefore be seen as an essential part of our life and work at central bank of barbados. i want to say a special thanks to the endowment committee, so many of whom are personal friends, for their sterling work over the years. we have made this small award an institution,

1980s, at around 10 per cent. one could argue that housing assets should be excluded from this latter measure, since foreigners ’ participation in the housing market is relatively limited. on that basis, the ratio rose somewhat in the early 1990s, but has been relatively steady since. in short, these measures do not suggest the build - up of any significant disequilibrium in the economy resulting from foreign liabilities. for developed economies with a floating exchange rate and the capacity to borrow offshore in their own currency, the risk from rising foreign liabilities is not that they will cause a traditional balance of payments crisis, but that they will undermine financial stability. the process by which this can happen typically starts with a country, for one or more reasons, becoming attractive to foreign investors. capital floods in, overwhelming the capacity of the economy to use it productively. credit is misallocated and eventually there is some form of a domestic financial crisis. this type of crisis can occur even in highly sophisticated economies, as illustrated by the recent sub - prime crisis in the united states. the policy challenge for countries in this situation is to ensure that the ready availability of offshore funds does not end up distorting or weakening the financial side of the economy. as the recipient of large amounts of offshore funds for much of the post - float period, australia has had to remain alert to these challenges. by and large, it has been able to successfully absorb significant amounts of offshore capital over many years. there are several factors that have contributed to this : first, the country ’ s foreign liabilities are virtually all either in australian dollars or hedged back to australian dollars. 2 australia is able to do this because foreign investors are happy to hold a certain proportion of their assets denominated in australian dollars. this means that australian borrowers do not face foreign exchange risk on the capital sourced from overseas. therefore, if sentiment turns and the exchange rate falls, domestic borrowers are largely unaffected. the large swings in the exchange rate of the australian dollar that have occurred over the past couple of decades in no way threatened the corporate and financial sectors. second, the offshore capital that has flowed into australia has been used essentially to fund high levels of investment. australia uses foreign capital not because its national saving ratio is low, but because its investment ratio is high by the standards of developed economies ( table 2 ). in the past decade, for example, the national savings rate in australia has averaged 22 per cent, much the same