by Michelle Cave

IT IS THE QUESTION I get most. In creating a single currency out of CARICOM members' existing dollars, how can you not devalue one or some?

Well, it's a good question; and truthfully deserves some solid facts. Here are some:

There is this thing called purchasing power parity. It is the basis, one can say, of all of this making of a single currency.

It basically means how much of a certain currency will buy a set, stated amount of goods or how many currency units will buy an ounce of gold at any set time.

What you then have are individual currencies able to buy a set amount of goods and a relationship being built with their currencies.

Some days these rates will go up and down; in these cases, the central banks have to bring convergence. They have to buy up the fluctuating country's money, creating a scarcity of that currency so that it will gradually come back to the agreed parity with the others in the group.

The Organisation of Eastern Caribbean States did this as did the European Union with the euro.

So, if we look at it in another way, all of this monetary adjustment is done over time, giving the currencies time to adjust and be measured.

Because the prices of goods in the real market change, the prices of goods need to be adjusted over time, so that when you go to St Kitts and Nevis a product costing $10 in Antigua might cost $11, to facilitate transport.

Here is where the central banks step in and set the market price of goods, making them the same in all countries and locking the currencies together by a process called fiat.

Wage rates will be affected too. Whatever you pay a carpenter in St Vincent, you pay him in Trinidad and Tobago. So, if there is no restriction on migration, people will go to the country paying the most, until the CARICOM governments set a new parity. There it is again, not devaluation but parity.

So, what most regions did was to create, after measuring and adjusting over time, a currency just 'on the books'. The Europeans called it the ecu, and it was applied to the financial markets first.

If you bought 100 marks of treasury bills, for example, and purchased them at 105 ecus, in three months they would be worth 120 ecus. After a while everyone simply looked at the ecu to see the value or rate of marks, lira, francs, whatever.

So, in importing or exporting goods, I am operating with the ecu. In this way, people became familiar with the convergence of wages, the cost of producing, and so on.

Key to fixing or maintaining the single currency is the control of the actual money in circulation. If US$1 is equal to $2 of our currency – let's call it the Carib – and we have 20 billion Caribs in circulation, in our central bank vaults we must have at least 40 billion Caribs in reserves.