The Coming Of Age Of Small Island States
Part I
The introduction of the Eastern Caribbean (EC) Currency and
the establishment of the Eastern Caribbean Central Bank (ECCB)
are two milestones of which the people of the region can be
proud. Eight small islands in the Western Hemisphere, with
a population of approximately 600,000, possess a strong and
stable currency issued and managed by the ECCB, one of only
four multi-state central banks in the world.
The history of the EC Currency and the ECCB embodies the
story of the coming of age of these small island states. Together,
the EC Currency and the Eastern Caribbean Central Bank have
performed in ways that have contributed to the growth, prosperity
and self-determination of the people of the Eastern Caribbean
Currency Union (ECCU). Let us therefore take a short journey
into their history.
Prior to the existence of the EC Currency, British Caribbean
notes and coins constituted the currency in circulation. These
were issued by the British Caribbean Currency Board (BCCB),
which was established in 1950 as the regional authority with
the sole power to issue currency for its member countries:
Barbados, British Guyana, The Leeward Islands, The Windward
Islands and Trinidad and Tobago.
After Trinidad and Tobago and British Guyana obtained their
political independence from the United Kingdom, these two
countries elected to withdraw from the British Caribbean Currency
Board to establish their respective central banks.
Their withdrawal led to the dissolution of the BCCB and the
establishment of the East Caribbean Currency Authority (ECCA)
in 1965 as the authority to issue and manage a common currency
for Barbados, and the Leeward and Windward islands with the
exception of Grenada. Grenada became a member of the ECCA
in 1968. In 1974, Barbados withdrew its membership from the
East Caribbean Currency Authority to establish its own central
bank.
From October 1965 to July 1976 the EC Currency was pegged
to the pound sterling at a rate of EC$4.80 to £1.00.
In July 1976, almost 28 years ago, the peg was transferred
to the US dollar at a parity of EC$2.70 to US$1.00.
While the ECCA ensured the sound management of the issuance
and redemption of the EC Currency, and of the region’s
portfolio of assets, it had limited powers to significantly
influence the economic and financial affairs of the region.
This limitation gave rise to the need for a central bank.
In 1981, as part of the Treaty of Basseterre establishing
the Organisation of Eastern Caribbean States (OECS) it was
agreed that the member states should have a common currency
and a common central bank. On October 1st 1983, The Eastern
Caribbean Central Bank was established.
The ECCB’s principal purposes are to issue and manage
the Eastern Caribbean currency, to safeguard its international
value, to promote monetary stability and a sound financial
structure and to promote the economic development of the participating
countries: Antigua and Barbuda, Anguilla, Dominica, Grenada,
Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent
and the Grenadines.
The EC dollar serves as a source of stability for the people
of the ECCU. The fixed exchange rate provides holders with
confidence in the value of the EC currency. On the international
level, the stability of the value of the currency allows ECCU’s
trading partners and external creditors to have confidence
in the currency that forms the basis of the economies.
The ECCB plays a critical role in the development of the
economies of the region through the provision of policy advice
to member governments, and ongoing consultations with key
governmental officials and private sector stakeholders. The
ECCB is also focused on the strengthening of the financial
system via the development of key regional financial institutions
and markets. Among these are the Eastern Caribbean Home Mortgage
Bank (ECHMB), the Eastern Caribbean Institute of Banking and
Financial Services (ECIB) the Eastern Caribbean Securities
Exchange (ECSE), the Eastern Caribbean Securities Market (ECSM)
and the Regional Government Securities Market (RGSM).
Part II
The history of the Eastern Caribbean (EC) Currency and the
Eastern Caribbean Central Bank (ECCB) is a success story of
small island states charting their economic and social future
along regional lines. Therefore discussions, on the EC Currency
and the ECCB must include not only issues of currency and
banking, but also the wider social and economic characteristics
that define the region.
Embodied in the Treaty of Basseterre is the recognition that
the economic strength of the ECCU member countries is intricately
entwined in the maintenance of strong intra-regional links.
This has been the guiding philosophy behind the creation of
a regional currency and a regional central bank, which together
symbolise the concept of financial integration.
Unlike traditional central banks that focus almost exclusively
on stability issues, the ECCB has a unique constitution that
embodies the concepts of stability, development and integration.
Integration, though not explicitly stated in the ECCB Agreement
1983, is implied in the multi-state nature of the Bank.
The issue of integration is clearly borne out by the ECCB’s
organisational structure. The Bank has as its highest decision
making authority, the Monetary Council comprised of one minister
appointed by each of the eight member governments. This regional
policy-making body represents six sovereign states and two
British dependent territories. In giving policy direction
to the Bank, the Monetary Council brings a regional consultative
and decision-making approach to the work of the ECCB.
For economies like ours which are small and open and thus
vulnerable to external shocks, integration provides a degree
of insurance against a prolonged crisis in the external environment
due the better chance of survival of the larger entity. Integration
is also attractive to the ECCU since it not only addresses
the issues of institutional inefficiencies and fragility,
due to small size but also positions the region as a stronger
economic entity when interfacing with the international system.
As we move towards a Caribbean Single Market and Economy (CSME),
a strong, unified ECCU is necessary if these states are to
successfully integrate into the wider Caribbean community.
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