The Cayman Islands located 480 miles south of Miami, Florida and 200 miles north of Jamaica is one of the world’s most successful, largest and sophisticated offshore financial centres. With a population of only 43,000 and home to one of the world’s highest standard of livings, the Cayman Islands today are a global financial powerhouse with banking assets exceeding $800 billion USD behind that of only New York, London, Tokyo and Frankfurt. The Cayman Islands also have offices to most of the world’s leading banks, accounting firms and other professional service providers. Foreign investment has been a key instrument to the island’s success as massive capital movements to the Cayman Islands have resulted in its prosperity including a construction boom that has evolved over the last few years.
POLITICS: this wealthy Caribbean nation is politicaly and economically very stable. As an overseas territory of the United Kingdom since 1962, the colony is administered by the Cayman Islands government. There is minimal government intervention in the economy, no direct taxation. The government receives it revenue from customs duties, stamp duty and by registration fees on corporations. The legal system is sound as Cayman Island Laws are based on English Common Law.
ECONOMY: financial services including banking & insurance, tourism, and construction make-up the largest industries for the Cayman economy. Macro-economic variables for the Caymans are stable with low inflation although the trade deficit is offset by large capital inflows from tourism and banking activities. In 1997, a national stock exchange was opened. Tourism accounts for 75 percent of foreign currency earnings. In 1997 alone, over 1.2 million tourist visits to the Caymans including a luxury end of the tourism market along with its famous popular 7 mile beach on Grand Cayman. The economy was renewed in 1978 when the Cayman Islands officially launched its offshore financial industry targetting banking & insurance activities although offshore company formations including trusts are now very popular. A new wave of growth for the Caymans Islands financial industry include Mutual Funds and a growing Hedge Fund industry. The financial services economy is complimented with the Caymans having very little taxation including no capital gains taxes, no inheritance taxes, no gift taxes although modest stamp duties are in place for real property. Since most goods are imported, the Cayman Islands have a relatively high cost of living.
Economic Statistics
GDP 2002 as measured by purchasing power parity stands at $1.27 billion USD with corresponding GDP/Capita at $35,000 USD. GDP growth rate for year 2002 came in at 1.7 percent. Inflation basically mirrors the levels achieved in the United States with inflation for 2002 at 2.8 percent which was slightly higher. Services represent 96 percent of the Cayman Islands economy.
POSITIVE: first class business environment, sound regulatory policies, forward-looking laws, government policies that encourage foreign investment, advanced hi tech business infrastructure, investors attracted to the ease at which shell companies can be created, safe living environment, 98 percent literacy rate. CONCERN: few natural resources - no oil, most consumer goods imported including food products.
BANKING SYSTEM: regulated by independent Cayman Islands Monetary Authority (CIMA) acting the role of a central bank. CIMA is responsible for issuing the Caymanian dollar and holds sufficient assets (ie. U.S. Treasuries) to back all the local notes and coinage in circulation. There are approximately 600 banks and trusts companies operating within the Cayman Islands.
REGIONAL ANALYSIS: United States
The Cayman Islands proximity to geography of being relatively close to the giant United States market helps to bolster economic confidence for the Caymans.
KNOWLEDGE: Information Transparency with OECD Countries
In February 2002, the Cayman Islands authorities signed a bilateral information-sharing agreement with the United States. The issue of bank privacy within the Caymans has been modestly compromised by a judgement awarded to the US Internal Revenue Service allowing for access to Mastercard and American Express records for U.S. citizens with offshore assets in the Caymans. Those U.S. citizens with suspected criminal behaviour maybe subjected to further investigation. In BI.C’s opinion, this will not be as devestasting as what has taken place in the Bahamas. The Bahamas signed a Tax Information Exchange Agreement with the United States relating to civil and criminal matters resulting in several banking closures in the Bahamas amongst a large number of corporations leaving to other jurisdictions.
The actions by the Cayman Islands authorities can be viewed as more of a compromise to protect their valuable tourism business while still maintaining adequate banking privacy to their global clientele. Although bank privacy is not as sounds as it once was within the Caymans, in BI.C’s view, the Caymans will remain a very popular offshore destination due to very favorable tax treatment coupled with a highly sophisticated company formation industry and other financial services such as both Mutual & Hedge funds. The Cayman Islands have also pledged greater openness to suspected cheaters of tax evasion for U.S. citizens and also enacted in September 1996 the Caymans signed a tough new anti-money laundering law.
CURRENCY: ISO symbol ‘KYD’, Caymanian dolllar. The Cayman Island monetary unit is the Caymanian dollar fixed to the US-dollar (‘USD) at 1 KYD to 1.20 USD, that is, takes just about a $1.25 USD to buy 1 Caymanian dollar when commission rates are accounted for. At time of review on June 24, 2004, the Caymanian dollar is pegged to the USD at 0.8247 KYD ($1.212 USD to buy 1 KYD) or 1.0021 KYD to 1 Euroland euro ‘EUR’, essentially at par with the EUR. No exchange controls. Currency regime is similar to a currency board with the exchange peg being sound for the Cayman Islands. The USD is widely accepted as currency.
CURRENCY HISTORY: historical exchange quotes include: November 1995 peg at 0.83 KYD to 1 USD, November 1993 at 0.85.
CURRENCY FORECAST: stable. At present, the USD has depreciated against several currencies including the EUR. With further USD weakening ahead, a currency revaluation for the Cayman Island dollar to a stronger level perhaps at 1.40 to 1.50 USD to the KYD might be a possibility. For further background on the US-dollar, please read the write-up on the ‘UNITED STATES’ within this BI.C currency index. The currency peg is sound for the Caymanian dollar which remains a very safe currency as it is further backed by a historically stable and powerful economy.
UPDATED: June 24, 2004
