East Caribbean Currency Union

Eastern Caribbean Currency Authority/Central Bank/Currency Union inherited quasi-currency board status from the colonial arrangements established by the UK. It switched its fix from GBP to USD following the turbulence in the GBP of the early 1970s, and developed from a currency authority into a central bank, but continued to function in largely the same way, with only a slightly more active monetary policy, but with more focus on integration (and more emphasis on financial sector supervision) from the 1990s.

Years Targets and attainment Classification
1974-83 Eastern Caribbean dollar fixed initially to GBP, and from 1976 to USD, by Eastern Caribbean Currency Authority (ECCA), institution set up in 1965 as successor to British Caribbean Currency Board (which was dissolved when Trinidad and Tobago and Guyana withdrew); ECCA covers (after Barbados left in 1974) group of very small island economies which had all been UK colonies: Antigua and Barbuda, Dominica,  Grenada, Montserrat, St Kitts and Nevis, St Lucia, St Vincent and Grenadines, and later Anguilla; members operate varying capital controls, and (market determined) interest rates differ between countries; ECCA fixes; ECCA operates largely as currency board with near 100% foreign exchange cover though legal minimum is 60% (70% up to 1975); little monetary or credit policy pure currency board PCB
1984-2017 Eastern Caribbean Central Bank (ECCB) as relatively independent central bank for Eastern Caribbean Currency Union (ECCU) takes over from ECCA late 1983, with aim of allowing more active and pro-development monetary policy and encouraging economic integration; ECCB can now lend more to member governments (but chooses to do so sparingly), begins to regulate commercial banks more actively, sets uniform reserve requirement in place of previous country-specific special deposits, issues country-coded banknotes which allows allocation of profits in proportion to shares of currency in circulation and imputation of reserves by country; primary concern of monetary policy is stability of exchange rate vs USD: fix is unchanged, forex cover remains higher than required (and IMF refers to ECCB – like ECCA – as quasi-currency board); interbank money market, with ECCB matching bids and offers, set up 1986; 1988 rediscount facilities made available; 1991 members enact uniform banking law covering capital requirements and other issues; over time rise of unofficial interbank market where banks transact with each other; by 1999 plans for regional government securities market and other capital market developments, but unresolved issues between ECCB and member state governments; 2000 ECCB formulates ranges for set of monetary indicators to strengthen policymaking process; concerns about changing international views on offshore financial centres (which had been set up in all ECCU countries), moves to introduce supervision by ECCB; late 1990s and early 2000s high fiscal deficits and rising debt ratios in most members, which become a long-running concern; 2002 regional government securities market (RGSM) launched, most members issue debt there; by 2006 interbank and RGSM volumes much higher; 2006 elimination of most capital controls and other within-ECCU restrictions; rising concern of ECCB with banking sector supervision; growing focus within Organization of Eastern Caribbean States on wider economic union; 2006 authorities resist IMF call to eliminate long-standing minimum saving deposit rate; 2009-12 GFC has large adverse effects, both direct (e.g. falls in tourism and FDI, leading to long-lasting rises in fiscal deficits and debt) and indirect (increased stress in banks, with ECCB limited in its ability to act as lender of last resort); ongoing efforts to strengthen financial sector and its supervision; as of 2009 ECCB’s instruments are reserve requirements (never changed), rediscount facilities, minimum savings deposit rate, discount rate, and discount window, but monetary policy remains largely inactive; lack of development of secondary regional securities market inhibits functioning of primary market; 2017 authorities continue to resist pressure to abolish minimum saving deposit rate; statistics improved over time but some need  for more improvement augmented currency board ACB

Selected IMF references: Barbados – Economic Situation 1971 pp65-9; RED St Lucia 1980 pp19-21; RED St Lucia 1983 pp21-3; RED St Lucia 1984 pp18-20; RED St Lucia 1985 pp16-18, 39-43; RED St Lucia 1987 p39; RED St Lucia 1992 p12; Experiences with Currency Boards 1996 pp5-6, 11, 16; Eastern Caribbean Central Bank – Institutional Arrangements and Issues in a Currency Union 1999 pp4-9, 14-16, 43-7; Eastern Caribbean Currency Union – Recent Developments and Policy Issues 1999 pp16-18, 21-2, 26-7; RDMRPI ECCU 2001 pp5-9, 13-16, 19-21, 28; SR ECCU 2006 pp31-2; SR ECCU 2007 pp11, 18-20, 21-2, 32; SR ECCU 2009 pp6-9, 15-16, 35; SR ECCU 2010 pp5-7, 11-12, 15-18; SR ECCU 2013 pp4-7, 10-13, 16; SR ECCU 2016 pp10-12; SR ECCU 2017 pp14-18 53-4.

Other references: Wolf et al. (2008), pp49, 54.

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