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Carlene Y. Francis

Over the past three to four years, Grenada, a member of the Caribbean Community (CARICOM) and the Eastern Caribbean Currency Union (ECCU), has been one of the fastest growing of the member countries of CARICOM (see chart, this page). Its success has been largely due to determined efforts aimed at strengthening the economy and diversifying its export product base.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

The Eastern Caribbean Central Bank is one of just a few regional central banks in the world and the only one where the member countries have pooled all their foreign reserves, the convertability of the common currency is fully self-supported, and the parity of the exchange rate has not changed. This occasional paper reviews recent developments, policy issues, and institutional arrangements in the member countries of the Eastern Caribbean Currency Union, and looks at the regional financial system, its supervision, and the central bank's initiatives to establish a single financial space. The paper includes a large amount of statistical information that is not readily available elsewhere from a single source.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

Eastern Caribbean countries institutionalized political and economic cooperation through the establishment of the Organization of Eastern Caribbean States (OECS) with the Treaty of Basseterre in 1981. Two years later they set up the Eastern Caribbean Central Bank (ECCB), which replaced the Eastern Caribbean Currency Authority. The eight member countries and territories of the ECCB are Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines, which are independent states and members of the IMF, and Anguilla and Montserrat, which are territories of the United Kingdom,1 The six independent OECS states and Montserrat are also members of the Caribbean Common Market, CARICOM, established in 1973.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

The establishment of the Eastern Caribbean Central Bank (ECCB) in 1983 was the culmination of a long period of monetary cooperation dating back to 1950 when the British Caribbean Currency Board (BCCB) was created (Box 2). The BCCB, which functioned as a currency board proper and maintained a foreign exchange cover of 100 percent of the currency issue, was replaced by the Eastern Caribbean Currency Authority (ECCA) in 1965, when the Eastern Caribbean dollar (EC$) was introduced and pegged to the pound sterling at a rate of EC$4.80 = £1. Under the ECCA, the foreign exchange backing was set at 70 percent and then reduced to 60 percent in 1975. Following a series of depreciations of the pound, the Eastern Caribbean dollar was pegged to the U.S. dollar in July 1976 at the then prevailing market cross-rate of EC$2.70 per U.S. dollar. The parity has remained fixed at that level.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

The goal of the money and capital markets development initiatives being sponsored by the ECCB is to create a “single financial space” within the Eastern Caribbean region. This is seen as the fulfillment of the objective set in Article 4. Section 3 of the ECCB Agreement requiring the Bank to “promote credit and exchange conditions and a sound financial structure conducive to … balanced growth and development.” The program seeks to achieve greater economies of scale in the region’s financial operations by integrating the regions’ financial markets. It also aims to broaden and deepen the financial markets and to enhance the effectiveness and efficiency of the mobilization of domestic and foreign savings to foster economic growth.

International Monetary Fund
As a reflection of the vulnerability to external shocks and the importance of large projects, gross domestic product growth has showed significant variations in the second half of the 1990s. The large public sector investments that have started in 1997 included the Leeward Highway, a new ferry and cruise ship berth, a banana irrigation project, and investments in health and education. During the second half of the 1990s, agriculture output declined—with output in 1999 about 20 percent lower than in 1995.
International Monetary Fund
This Selected Issues paper analyzes the income dispersion and comovement in the Eastern Caribbean Currency Union region. It finds that incomes are diverging, with the Leeward Islands converging to a higher income level than the Windward Islands. The paper examines the macroeconomic impact of trade preference erosion on the Windward Islands and demonstrates the substantial impact from preference erosion on growth, trade balances, and fiscal positions. The paper also analyzes the size of the informal economy in the Caribbean.
Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

The growth of real GDP in the OECS region declined from 3 percent in 1997 to a little more than 2 percent in 1998, with real GDP per capita growing at just over 1 percent (Table 9). The utilities and construction sectors registered strong gains (Table 10), supported by substantial public sector investment and private residential construction in most countries in the region. Tourism activity in 1995–96 suffered from the damage caused by hurricanes in the fall of 1995, but the number of stayover visitors and cruise ship passengers increased markedly in 1997–98, aided by improvements in port facilities, visits by larger cruise ships, and greater marketing efforts.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

The ECCB maintains open access to a common pool of foreign exchange and aims its credit policy at providing strong foreign exchange backing for currency issued, thereby supporting the fixed exchange rate policy. Under this arrangement, of course, there is no scope for monetary policy at the national level, the trend rate of inflation in the region is determined fundamentally by inflation in the United States and the other main trading partners, and market interest rates within the region follow closely world interest rates with a premium reflecting local conditions. While the region’s trading systems have been relatively open by necessity, until recently the capital accounts have been relatively insulated from the rest of the world by restrictions and, perhaps, geographical isolation.

Mrs. Ruby Randall, Mr. Jorge Shepherd, Mr. Frits Van Beek, Mr. J. R. Rosales, and Ms. Mayra Rebecca Zermeno

Abstract

Throughout the past 25 years of turbulence in the international financial system, the countries in the eastern Caribbean have enjoyed remarkable monetary stability. Indeed, the Eastern Caribbean Currency Union and its flagship, the ECCB, provide an impressive example of successful, long-standing monetary cooperation. The monetary and exchange arrangements maintained by the ECCB have served the region well, fostering confidence through stable domestic prices anchored in a peg to the U.S. dollar. The “strong Eastern Caribbean dollar” policy pursued by the ECCB has imposed hard limits on its ability to extend credit to participating governments. As a result, a premium has been placed on fiscal discipline, with most participating governments following prudent fiscal policies.