| You and the EC Currency
Do you know that as a resident of the Eastern Caribbean Currency
Union (ECCU) you influence the amount of the region’s
foreign reserves and by extension, the amount of EC currency
in circulation?
You are probably wondering how you fit into the picture when
it comes to the region’s pool of foreign reserves, and
what link exists between the foreign reserves and the EC currency.
Let us therefore examine the inflows of foreign currency to
the ECCU and their link to the region’s foreign reserves
and the generation of additional EC currency.
Your Influence on the Foreign Exchange Inflows and
The Generation of EC Currency
A significant portion of the region’s foreign reserves
is derived from foreign currency inflows. These can take the
form of earnings from exports like tourism,
sugar, bananas, nutmeg, and manufactured items, remittances
from families and friends abroad, foreign investments,
grants and loans.
Exports of goods and services account for approximately 75%
of foreign currency inflows to the region. When your productive
activities result in a good or service which is exported you
would have exerted a positive influence on the region’s
foreign exchange earning capacity. If you receive remittances
from friends and families living abroad you would also influence
the amount of foreign currency inflows to the region. The
level of skills and work attitudes of ECCU citizens also influence
the investment climate that attracts foreign investors.
A significant portion of the foreign currency inflows is
channeled through the commercial banks. Because payments for
goods and services within the Eastern Caribbean Currency Union
are carried out in EC dollars, the public would demand EC
notes and coins from the commercial banks. In the event that
the commercial banks do not have an adequate supply, they
would have to approach the ECCB to convert a portion of their
US funds to EC currency. Through these channels, ECCB obtains
foreign currency and in turn issues to the commercial banks
the equivalent in EC currency. In so doing, additional EC
notes and coins are created.
The amount of EC currency in circulation is therefore a direct
result of the collective efforts of the residents to earn
and/or attract foreign exchange to the region. Given that
a large portion of the foreign currency inflows is directly
linked to the region’s economic activity, it follows
that the higher the level of economic activity within the
ECCU, the greater the potential for increasing the amount
of foreign currency coming into the region, and the greater
the amount of additional EC currency which can be issued by
the ECCB.
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