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.

Recent Occasional Papers of the International Monetary Fund

195. The Eastern Caribbean Currency Union—Institutions, Performance, and Policy Issues, by Frits van Beek, José Roberto Rosales, Mayra Zermeño, Ruby Randall, and Jorge Shepherd. 2000.

194. Fiscal and Macroeconomic Impact of Privatization, by Jeffrey Davis, Rolando Ossowski, Thomas Richardson, and Steven Barnett. 2000.

193. Exchange Rate Regimes in an Increasingly Integrated World Economy, by Michael Mussa, Paul Masson, Alexander Swoboda, Esteban Jadresic, Paolo Mauro, and Andy Berg. 2000.

192. Macroprudential Indicators of Financial System Soundness, by a staff team led by Owen Evans, Alfredo M. Leone, Mahinder Gill, and Paul Hilbers.2000.

191. Social Issues in IMF-Supported Programs, by Sanjeev Gupta, Louis Dicks-Mireaux, Ritha Khemani, Calvin McDonald, and Marijn Verhoeven. 2000.

190. Capital Controls: Country Experiences with Their Use and Liberalization, by Akira Ariyoshi, Karl Habermeier, Bernard Laurens, Inci Ötker-Robe, Jorge Iván Canales Kriljenko, and Andrei Kirilenko. 2000.

189. Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union, by Donal McGettigan. 2000.

188. Financial Sector Crisis and Restructuring: Lessons from Asia, by Carl-Johan Lindgren, Tomás J.T. Baliño, Charles Enoch, Anne-Marie Guide, Marc Quintyn, and Leslie Teo. 1999.

187. Philippines: Toward Sustainable and Rapid Growth, Recent Developments and the Agenda Ahead, by Markus Rodlauer, Prakash Loungani, Vivek Arora, Charalambos Christofides, Enrique G. De la Piedra, Piyabha Kongsamut, Kristina Kostial, Victoria Summers, and Athanasios Vamvakidis. 2000.

186. Anticipating Balance of Payments Crises: The Role of Early Warning Systems, by Andrew Berg, Eduardo Borensztein, Gian Maria Milesi-Ferretti, and Catherine Pattillo. 1999.

185. Oman Beyond the Oil Horizon: Policies Toward Sustainable Growth, edited by Ahsan Mansur and Volker Treichel. 1999.

184. Growth Experience in Transition Countries, 1990–98, by Oleh Havrylyshyn, Thomas Wolf, Julian Berengaut, Marta Castello-Branco, Ron van Rooden, and Valerie Mercer-Blackman. 1999.

183. Economic Reforms in Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, by Emine Gürgen, Harry Snoek, Jon Craig, Jimmy McHugh, Ivailo Izvorski, and Ron van Rooden. 1999.

182. Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union, by a Staff Team Led by Liam Ebrill and Oleh Havrylyshyn. 1999.

181. The Netherlands: Transforming a Market Economy, by C. Maxwell Watson, Bas B. Bakker, Jan Kees Martijn, and Ioannis Halikias. 1999.

180. Revenue Implications of Trade Liberalization, by Liam Ebrill, Janet Stotsky, and Reint Gropp. 1999.

179. Disinflation in Transition: 1993–97, by Carlo Cottarelli and Peter Doyle. 1999.

178. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment, by Timothy Lane, Atish Ghosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas, and Tsidi Tsikata. 1999.

177. Perspectives on Regional Unemployment in Europe, by Paolo Mauro, Eswar Prasad, and Antonio Spilim-bergo. 1999.

176. Back to the Future: Postwar Reconstruction and Stabilization in Lebanon, edited by Sena Eken and Thomas Helbling. 1999.

175. Macroeconomic Developments in the Baltics, Russia, and Other Countries of the Former Soviet Union, 1992–97, by Luis M. Valdivieso. 1998.

174. Impact of EMU on Selected Non–European Union Countries, by R. Feldman, K. Nashashibi, R. Nord. P. Allum, D. Desruelle, K. Enders, R. Kahn, and H. Temprano-Arroyo. 1998.

173. The Baltic Countries: From Economic Stabilization to EU Accession, by Julian Berengaut, Augusto Lopez-Claros, Françoise Le Gall, Dennis Jones, Richard Stern, Ann-Margret Westin, Effie Psalida, Pietro Garibaldi. 1998.

172. Capital Account Liberalization: Theoretical and Practical Aspects, by a staff team led by Barry Eichengreen and Michael Mussa, with Giovanni Dell’Ariccia, Enrica Detragiache, Gian Maria Milesi-Ferretti, and Andrew Tweedie. 1998.

171. Monetary Policy in Dollarized Economies, by Tomás Baliño, Adam Bennett, and Eduardo Borensztein. 1998.

170. The West African Economic and Monetary Union: Recent Developments and Policy Issues, by a staff team led by Ernesto Hemández-Catá and comprising Christian A. François, Paul Masson, Pascal Bouvier, Patrick Peroz, Dominique Desruelle, and Athanasios Vamvakidis. 1998.

169. Financial Sector Development in Sub-Saharan African Countries, by Hassanali Mehran, Piero Ugolini, Jean Phillipe Briffaux, George Iden, Tonny Lybek, Stephen Swaray, and Peter Hayward. 1998.

168. Exit Strategies: Policy Options for Countries Seeking Greater Exchange Rate Flexibility, by a staff team led by Barry Eichengreen and Paul Masson with Hugh Bredenkamp, Barry Johnston, Javier Hamann, Esteban Jadresic, and Inci Ötker. 1998.

167. Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, edited by Peter Isard and Hamid Faruqee. 1998

166. Hedge Funds and Financial Market Dynamics, by a staff team led by Barry Eichengreen and Donald Mathieson with Bankim Chadha, Anne Jansen, Laura Kodres, and Sunil Sharma. 1998.

165. Algeria: Stabilization and Transition to the Market, by Karim Nashashibi, Patricia Alonso-Gamo, Stefania Bazzoni, Alain Féler, Nicole Laframboise, and Sebastian Paris Horvitz. 1998.

164. MULTIMOD Mark III: The Core Dynamic and Steady-State Model, by Douglas Laxton, Peter Isard, Hamid Faruqee, Eswar Prasad, and Bart Turtelboom. 1998.

163. Egypt: Beyond Stabilization, Toward a Dynamic Market Economy, by a staff team led by Howard Handy. 1998.

162. Fiscal Policy Rules, by George Kopits and Steven Symansky. 1998.

161. The Nordic Banking Crises: Pitfalls in Financial Liberalization? by Burkhard Dress and Ceyla Pazarbasioğlu. 1998.

160. Fiscal Reform in Low-Income Countries: Experience Under IMF-Supported Programs, by a staff team led by George T. Abed and comprising Liam Ebrill, Sanjeev Gupta, Benedict Clements, Ronald McMorran, Anthony Pellechio, Jerald Schiff, and Marijn Verhoeven. 1998.

159. Hungary: Economic Policies for Sustainable Growth, Carlo Cottarelli, Thomas Krueger, Reza Moghadam, Perry Perone, Edgardo Ruggiero, and Rachel van Elkan. 1998.

158. Transparency in Government Operations, by George Kopits and Jon Craig. 1998.

157. Central Bank Reforms in the Baltics, Russia, and the Other Countries of the Former Soviet Union, by a staff team led by Malcolm Knight and comprising Susana Almuiña, John Dalton, Inci Otker, Ceyla Pazarbasioğlu, Arne B. Petersen, Peter Quirk, Nicholas M. Roberts, Gabriel Sensenbrenner, and Jan Willem van der Vossen. 1997.

156. The ESAF at Ten Years: Economic Adjustment and Reform in Low-Income Countries, by the staff of the International Monetary Fund. 1997.

155. Fiscal Policy Issues During the Transition in Russia, by Augusto Lopez-Claros and Sergei V. Alexas-henko. 1998.

154. Credibility Without Rules? Monetary Frameworks in the Post-Bretton Woods Era, by Carlo Cottarelli and Curzio Giannini. 1997.

153. Pension Regimes and Saving, by G.A. Mackenzie, Philip Gerson, and Alfredo Cuevas. 1997.

152. Hong Kong, China: Growth, Structural Change, and Economic Stability During the Transition, by John Dodsworth and Dubravko Mihaljek. 1997.

151. Currency Board Arrangements: Issues and Experiences, by a staff team led by Tomás J. T. Baliño and Charles Enoch. 1997.

Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.


Anguilla did not join the ECCB until 1987. The British Virgin Islands are an associate member of the OECS, but not of the ECCB.


For a discussion of vulnerability and other aspects of the economies of small states, see Small States: Meeting Challenges in the Global Economy, Report of the Commonwealth Secretariat/World Bank Joint Task Force on Small States, April 2000.


St. Kitts and Nevis produces some 20,000 tons of sugar a year for export under quotas to the United States and the European Union. The state-owned sugar company incurs a loss of some EC$18 million a year.


There is some evidence that firms have left the region for Mexico to benefit from the NAFTA arrangement.


In this sense, an individual ECCB member country cannot have a “balance of payments problem,” only a fiscal problem. Accordingly, external arrears by an ECCB member country that is also a member of the IMF are not considered evidence of an exchange restriction under Article VIII, Section 2(a) of the IMF’s Articles of Agreement.


These imputed reserves are not a measure of the foreign reserves at a member country’s disposal. For one thing, the sum of countries’ imputed gross reserves falls considerably short of the total foreign assets of the ECCB. Another difficulty is that the coded notes travel freely from one country to another, creating a wedge between currency issued and currency in circulation in each country. Nevertheless, changes in the imputed reserves (together with changes in the typically small amounts of SDRs and other foreign assets held by individual governments) are used to estimate the balance of payments of the individual countries as compiled by the ECCB and the IMF. The sum of these “imputed” balance of payments of the individual countries does not equal the overall balance of payments of the currency union, after adjustment for intraregional transactions.


Reserve pooling smoothes differences in the timing of inflows into the reserve pool arising from the different composition of member countries’ exports.


Namely, reserve money, consisting of bank reserves and currency issued. The backing ratio is calculated as external assets less commercial bank foreign currency deposits with the ECCB, divided by demand liabilities.


Prior to the creation of the ECCB, some participating governments required commercial banks to maintain “special deposits”—in lieu of reserve requirements—which were never refunded. This outstanding liability of member governments was credited to the statutory reserve accounts of the commercial banks, while the ECCB assumed the governments’ liabilities in this regard.


Instances where the backing ratio dipped well below the “golden rule” typically reflect such emergency lending to governments. For example, in the early 1980s the backing ratio was down below 80 percent, following the eruption of the volcano in St. Vincent and the Grenadines in 1979 and the 1980–81 hurricanes that damaged Dominica and St. Lucia.


There is a 24-hour/7-day call account facility, as well as 1, 2, 3, and 6-month deposit facilities. Already under ECCA, a pound sterling deposit facility for hanks was established in 1968.


There is also a private interbank market, as described in Chapter IV.


Commercial banks can rediscount treasury bills with the ECCB as follows: 1–29 days at a rate of 6.58 percent; 30–60 days at a rate of 6.65 percent; and 61–91 days at a rate of 6.71 percent. However, in practice the ECCB does not regularly rediscount bills maturing within 1–29 days.


The discount rate and the other administered rates are reviewed at each meeting of the Monetary Council.


This section draws on a report of the World Bank, OECS Financial Sector Review. May 1998 (gray cover).


OECS Financial Sector Review, pp. 2–5.


These restrictions apply in the case of Grenada, Dominica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.


OECS Financial Sector Review.


A necessary condition for the ECCB to intervene is that the failure of a financial institution has the potential to put “the financial system of any of the territories of the participating Governments in danger of disruption, substantial damage, injury or impairment” (Article 5B. (2)). This amendment was introduced in order to enable to ECCB to respond appropriately to the failure of the Bank of Montserrat in 1993 (see Chapter V).


In particular, in July 1995 the ECCB introduced additional prudential guidelines (including stricter provisioning standards) and expanded the reporting requirements of banks.


This guideline is more stringent than the corresponding stipulation in the UBA, since unlike the UBA the guidelines do not allow for exceptions from the stipulated 25 percent. Since the provisions of the UBA have legal precedence over the prudential guidelines, there is a recognized need to harmonize the two documents.


In this respect, a “group of related persons” is defined as “two or more persons,…holding exposures from the same credit institution and of its subsidiaries, whether on a joint or separate basis, but who are mutually associated in that; (i) one of them holds directly or indirectly power of control over the other…or; (ii) their cumulated exposures represent to the credit institution a single risk in so much as they are interconnected with the likelihood that if one of them experiences financial problems the other or all of them are likely to encounter repayment difficulties…” Relevant “interconnections” among persons include: “common ownership, common directors, cross guarantees, and direct commercial inter-dependency which cannot be substituted in the short term.”


Tier I capital is comprised of paid-up ordinary share capital and surplus, paid-up perpetual noncumulative preference shares and share surplus; statutory reserves; capital reserves (excluding asset revaluations); general reserves (excluding reserves losses on assets); audited retained earnings (accumulated losses) less current year losses; bonus shares from capitalization of unrealized asset revaluation reserves; goodwill and other intangibles.

Risk weights for balance sheet items are as follows: (a) zero for foreign and domestic currency cash and government securities; (b) 20 percent for claims on domestic and foreign financial institutions; (c) 50 percent for fully secured real estate residential mortgages; and (d) 100 percent for other claims on the private sector and for real estate and equity investments. For off-balance sheet items: (a) zero risk is attached to claims (with or without government guarantees) on domestic and foreign government entities; (b) 20 percent to claims on domestic and approved foreign financial institutions, public sector entities and multilateral development banks; and (c) 100 percent to claims on the private sector and other institutions.


Tier II capital consists of Fixed asset revaluation reserves (limited to 20 percent of Tier I capital); general provisions/reserves for losses on assets (limited to 1.25 percent of total risk-weighted assets); paid-up perpetual cumulative preference shares and share surplus; bonus shares from capitalization of unrealized asset revaluation reserves; unaudited undivided profits; asset revaluation reserves; mandatory convertible debt instruments; other hybrid capital instruments; and subordinated term debt and limited life preference shares (limited to 50 percent of Tier I capital).


Bank Soundness and Macroeconomic Policy, by C. J. Lindgren, G. Garcia, and M. I. Saal, IMF (1996), p. 187.


Dominica’s legislature recently approved legislation that enables the ECCB to supervise its offshore banks (in accordance with the provisions of Article 41 of the ECCB Agreement Act).


“Alien” is defined as any person who is not a citizen of that territory and companies owned by noncitizens.


None of the Windward Islands has fulfilled its quota under the EU banana regime in any given year.


WIBDECO, the Windward Islands Banana Development and Export Company, is a holding company jointly owned by the four governments of the Windward Islands and the four Banana Growers Associations (BGAs) on a 50–50 equity participation basis. WIBDECO loads the green bananas onto ships at local Windward ports for sale to the joint venture company W1BDECO/FYFFES based in the United Kingdom. WIBDECO also conducts research, provides technical assistance to BGAs. and inspects banana fields for quality control.


Visitors staying at least one night.


Governments in Antigua and Barbuda (1994), St. Kitts (1995), and St. Lucia (1997) instituted short-term public employment schemes aimed at alleviating unemployment. Also, it is worth noting that the Government of Grenada has been transferring certain health and other services and staff to newly created statutory boards. While this has reduced the central government wage bill, central government transfers to the rest of the public-sector have increased.


Antigua and Barbuda has remained by far the largest offshore center in the region; its system was described in IMF Staff Country Report No. 98/7, Antigua and Barbuda: Recent Economic Developments.


For details on taxes in the OECS countries, see IMF Staff Country Report No. 99/36, Grenada: Statistical Annex (Table 28).


Debt forgiveness was also extended to Montserrat.


A levy of 1 percent on the purchase of foreign exchange remains in effect in Antigua and Barbuda. Foreign exchange levies of differing levels also exist in Anguilla and Montserrat.


Ruby Randall, Interest Rate Spreads in the Eastern Caribbean, IMF Working Paper (WP/98/59. April 1998).


As measured by the real effective exchange rate indexes, calculated by the IMF, which use relative consumer prices. Lack of data precludes the calculation of indexes based on unit labor costs or wages.


The CET is a tariff schedule with several rates. The 20 percent maximum tariff applies to noncompeting final goods and agro industry products. A higher duty rate applies to agriculture (40 percent), and lower rates to agricultural inputs (zero), non-competing primary inputs (5 percent), and competing inputs (10 percent or 15 percent) (Table 40).


As allowed by Article 56 of the CARICOM Agreement, the OECS countries have imposed license requirements for imports from more advanced CARICOM countries on the following products: curry powder, wheal flour, pasta products, aerated beverages, beer, oxygen, carbon dioxide, acetylene, candles, solar water heaters, wood chairs, and other wood furniture.


As noted earlier, the stock of net ECCB credit to member governments declined during the 1990s.


Unsatisfactory assets is synonymous with nonperforming assets.


Remaining restrictions are listed in Table 8.


The efforts of regional governments in this area are being supported by the World Bank’s OECS Telecommunications Reform Project. Its objective is to help enhance competition in the telecommunications sector and increase supply of informatics-related skills in OECS countries. The Eastern Caribbean Telecommunications Authority was established in May 2000, with the aim of harmonizing the regulatory framework for the sector.

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