Published On: Wed, Apr 1st, 2020

The Golden Guilder

Five Guilders

On St. Maarten, banks and the government are advising the general population to use guilders as much as possible, as a way to save dollars. I agree wholeheartedly with this advice. Here is why. When the dollars stop flowing into our economy, using guilders for our daily transactions will keep our economy going and save the dollars to pay for our imports. When those dollars run out, we will have to use our ‘gold backed’-Guilder to buy new dollars to pay for new imports. Hence the title of this article, The Golden Guilder.

Similarly, on an international scale, banks and governments are trying to discourage the use of dollars; but for another reason, arguing that the transfer of cash in the form of banknotes and coins from hand to hand can lead to contamination with the corona virus. But experts say cash is not a major risk for infection. Consumers should be cautious, but not fearful of handling cash. The money that you withdraw from the ATM has been disinfected. If you are unsure about the money you get back at the supermarket, sanitize it or wear gloves when you take money. This also applies to the use of a bank card or credit card.

Apparently, large denomination bills are in such high demand that a number of banks in the United States were cleaned out of $100 bills. We haven’t heard of this yet in St. Maarten. But it is clear that the coronavirus pandemic makes society even more prone to use cash. In normal times, commercial banks are the only place where local citizens can hold funds digitally. But we will come back to that topic of digital funds in another article with the working title ‘The St. Maarten Digi-Dollar”.

The dollar is on a tear. Everyone in the world now prefers to have dollar balances in their bank accounts: not all national currencies are considered safe during a crisis, and dollars and euros are preferred. Investors, hedge funds and investment funds are selling assets, the stock markets have plummeted at a dizzying rate. Even the price of government bonds and other securities tumbled.

The huge demand for dollars is deteriorating the exchange rate of other national currencies. This disrupts the financing of developing economies as many countries with a different currency can no longer pay their huge dollar debts. This is forcing these countries to make major macroeconomic adjustments, precisely when everything should be used to tackle the corona crisis.

While the coronavirus pandemic is hitting island economies saddled with record levels of debts, the willingness of investors, hedge funds and investment funds to lend dollars and euros is very small. Investors flee from risks. While the lifeblood of tourism has stopped flowing to the Caribbean and falling commodity prices are impacting the region, governments are grappling to control a public health crisis that is straining human and financial resources.

How to mitigate the economic fallout from the coronavirus? Profitable and essential companies should be prevented from getting into trouble by the temporary shock caused by the pandemic. Today the aviation sector is already under pressure because people can no longer travel. It will get worse when families and companies will postpone their spending or investments because of the continuing uncertainty. In this way, a temporary shock could grow into a much deeper crisis that lasts longer.

Market watchers were able to determine that panic selling of U.S. stocks has ceased as the Federal Reserve and American Congress have delivered unprecedented fiscal and monetary stimulus aimed at dampening the blow to the U.S. economy. The new government of St. Maarten can and must intervene now; as the Governor has urged them to do, during their recent installation ceremony. The country is faced with increasing prices, high rates of unemployment and an economic crisis that will rock the island for years to come if government doesn’t (try to) do whatever it can to avoid stagflation.

Stagflation is an economic cycle in which there is a high rate of both inflation and stagnation. Inflation occurs when the general level of prices in an economy increases. Stagnation occurs when the production of goods and services in an economy slows down or even starts to decline. The COVID-19 shutdown has basically slowed down production drastically while the income of 90% of the population is in danger. A double whammy for the economy.

What do we do? We trade in our dollars for guilders and use guilders to make cash payments. That is the advice. From a monetary perspective, it is better to pay digitally using your debitcard or creditcard and paying in guilders. Preferably it is best to make online transfers in guilders as much as possible as well.

Our economy is highly dollarized and thus characterized as a dollar economy, but the US Dollar is not our official currency. Our main currency is the former Netherlands Antilles Guilder (NAF or ANG). Our economy is therefore semi-dollarized – with prices of goods and products in stores priced in both guilders and dollars – as our official guilder currency has been pegged to the US Dollar with a fixed exchange rate of 1.80, meaning for every dollar you get 1.80 guilders. Naturally, the actual commercial rates the banks use to buy and sell dollars vary with a spread from 1.77 to 1.82. That way banks are able to make a profit from the difference between the selling and buying prices.

In order to be able to sell dollars to the local citizens, or anyone that needs to buy dollars basically, banks through the Central Bank buy dollars in massive quantities from the US Federal Reserve. This is done using the Guilder. Guilders are accepted on the pledge that the Central Bank will buy back the Guilders plus pay the interest owed. Basically, our Guilder is used as a debt-instrument to buy US Dollars from the United States Federal Reserve. Buying dollars is like taking out a loan and the collateral we pledge is our guilders. The reason why our guilders are gladly accepted is because the guilder is backed by our gold reserves, which is estimated to be in the range of 5 to 7 billion guilders depending on the market price of gold. Gold has consistently maintained its value and increased over the years consistently as well. Therefore, it is a wise decision to maintain reserves not only in foreign currencies such as dollars, euros and other currencies, but also in gold, and silver as well for that matter. However, it is unknown whether our Central Bank of Curacao & St. Maarten maintains any other precious metals in its reserves besides gold.

Another way we get dollars into our economy is from tourists visiting our island and spending their dollars buying our goods and services such as products in the shops and paying for our island tours and other services and amenities. St. Maarten has been fortunate to rank high in terms of cruise passenger spending and stay-over tourism. Now, due to the COVID-19 travel restrictions and the global economic shutdown, tourism has come to a complete stop. That means no more dollars are entering our economy through tourism. Last we checked, St. Maarten did not have much if any export products. Okay, besides maybe Guavaberry liqueurs and Topper’s Rhum. We mainly benefit from the sea, sand and sun the tourists come to our island to enjoy and happily use their US dollars to pay for this enjoyment. That is our major export product: tourism.

In times like these when a country is on lockdown, the value of having one’s own currency is finally understood and the importance of having such to fuel one’s own economy appreciated. That means that we are not dependent on the dollar as the only medium of exchange on our island. Fortunately, we have our Guilder. If this lockdown last long enough, we will eventually run out of dollars and we will have no choice but to use guilders. There goes ‘dollarization’ out the window. But when we do run out of dollars, there is a third way we get dollars into our local economy that we will have to utilize as long as cargo shipments are still allowed. I will explain that in the follow-up article.

However, in the end, we have to conserve our dollars as we need to save these in order to be able to pay for the essential goods that we must import. Goods such as food, medicines and fuel for utilities provider GEBE. Using dollars to pay for any other things that are not essential to our economy, will eventually lead to leakage. Meaning the unnecessary outflow of dollars out of our economy. To avoid that and to stimulate local citizens to exchange their dollars for guilders at the banks, government could incentivize the banks to buy back the dollars from the population at a favorable rate of 2 guilders to the dollar. That will be an efficient and effective way to boost our economy while the COVID-19 worldwide shutdown lasts and we deal with the economic slowdown as a consequence of this corona-virus crisis for our island. We must be creative, resourceful and determined to do all that is possible to revive our grounded economy.

Terrance Rey


Profile Pic Terrance Rey

Terrance Rey is Owner and Publisher of StMaartenNews.com. Terrance Rey is an Awardwinning Businessman, Experienced Aviation Broker, Travel Consultant, Destination Marketeer, Internet Entrepreneur, Government Policy Advisor and All-Round-Go-To-Professional-To-Get-Things-Done on St. Maarten.


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