Island’s stability a boon after Brexit vote
Bermuda could benefit from uncertainty over Britain’s future relationship with the European Union, a top economic analyst said.
Paul Domjan, CEO of 4CAST-RGE, a London-based international economic forecaster, added that Bermuda might be better off if its currency was no longer tied to the dollar.
Mr Domjan said that future economic ups and downs in the US would affect Bermuda — like currency depreciation in Britain in the wake of the vote to leave the EU has hit the Channel Islands, whose notes are linked to sterling, even though the local environment had not changed.
“I wonder whether more offshore jurisdictions should think about having their own currency; their own exchange-rate mechanism,” he said.
“Offshore jurisdictions should think about how closely they want to mirror major jurisdictions.
“Iceland has its own currency and it’s doing very well, which it wouldn’t have done if it was pegged to the euro. A small, open economy can support its own currency.
“Bermuda should look at how it retains access to these large, established economies without being exposed to the risk there.”
Mr Domjan, was a keynote speaker at the World Alternative Investment Summit, held at the Fairmont Southampton last week.
He told delegates that Britain’s disentanglement from Europe would take time to accomplish.
“When you leave the European Union, it’s like a marriage. It’s not like you break-up with your boyfriend — you have to get a divorce.
“This is a process that will end in 2020. If you are a big asset management firm, would you want to take the risk?
“A lot of this turmoil is good for offshore territories. This kind of audience, who are concerned about wealth protection, they need to think about this.
“In terms of certainty for wealthy investors and corporates, there is definitely more certainty in the offshore sector rather than in large, developed countries.
“Bermuda is able to offer a stable regulatory environment and a stable taxation system.”
Mr Domjan added: “If I was looking at setting up a family office, I would be looking at an offshore jurisdiction.”
He said Bermuda’s “conservative” approach to the introduction of US-style limited liability companies could also give the island an edge. These are a hybrid entity combining features of both partnerships and corporations and used in the US for private equity funds and other asset management structures, as well as in the private client and trust sectors.
Mr Domjan, a graduate of the London Business School, Oxford University and the University of Texas at Austin, added: “They are being introduced, but they seem to be getting introduced in a slightly more conservative fashion than the US, and that’s a good thing.”
He said the “new abnormal” had overtaken the “new normal” with potentially destabilising major events like Brexit and the US presidential election on the horizon.
And he added December’s Italian referendum on a constitutional amendment to the structure of government, proposed by the ruling centre left Prime Minister Matteo Renzi and his Democratic Party, could lead to a General Election if rejected by voters, which might in turn trigger a vote on Italy’s membership of the EU.
Mr Domjan said: “There are a tremendous number of these abnormal events. They have created market volatility, but they haven’t really affected growth.
“Just like Brexit, you need to be prepared for the possible. You need to recognise that politics can often take a direction that is contrary to economic self-interest.”