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The Day the Banks Stood Still: Haiti, The United States, and Monetary Policy in the 1980s

Adam Silvia
(Florida International University)

Come 1980, banking in the United States and Haiti was in crisis, though, for very different reasons. In the United States, forty years of Keynesianism led to inflation, excessive lending, and rampant speculation. In Haiti, however, many of those same American banks, Citibank, etc., refused to lend, rejecting risks far smaller than those embraced in the United States. Both crises were inflationary. In the United States, banks lent beyond their means, in essence, creating too much money. In Haiti, banks hoarded Gourdes, forcing the state to print replacements. Although the underlying problems were opposite, monetary authorities in the United States and Haiti responded the same. At the insistence of University of Chicago Professor Milton Friedman, United States Federal Reserve Chairman Paul Volcker disciplined the banks by raising average reserve rates by 8 percent. In Haiti, Minister of Finance Leslie Delatour, a graduate of the University of Chicago, in turn, raised average reserve rates by 8 percent.

The study I would like to present compares responses to banking crises in the United States and Haiti in the 1980s. Was Haiti incorrectly mimicking Chicago ideology in the United States? A contractionary monetary policy was appropriate in the United States, where banks were too aggressive, but, seemingly, not in Haiti, where banks were reticent. I argue, no, heightened reserve rates in Haiti had little to do with ideology, but, rather, were an integral part of a wider, practical development strategy. Unlike the United States, Haiti was not trying to resolve its banking crisis, but, instead, to circumvent it. Haiti let the banks keep their Gourdes, but required they move the cash from liquid money supply to the reserve vaults, where it would not contribute to inflation. The inflow of United States assistance after the fall of Jean-Claude Duvalier served not only to bailout the state, but, also, to replace the Gourdes stockpiled in the banks with Dollars, a new supply of money that would not inflate. United States assistance and heightened reserve rates combined to reverse inflation and, hence, lower production costs. Though more practical than ideological, the monetary policy created new problems, like a dependency on the inflow of United States Dollars, while never solving old problems, foremost the liquidity crisis. The goal of the presentation would be to improve awareness of a more-often overlooked dimension of U.S.-Haitian relations, and generate fruitful discussion for a forthcoming history of banking in Haiti.

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