Anguilla, St. Lucia, Dominica, St. Kitts & Nevis, Montserrat,
St. Vincent & The Grenadines, Grenada, Antigua & Barbuda
The common currency union arrangement in place for these eight sovereign small island economies within the Eastern Caribbean ‘EC’ has provided for a stable currency. Total population for the entire currency zone remains quite small at only 566,000 people. The common central bank, East Caribbean Central Bank (ECCB) is responsible for regulating the domestic finance for each participating country which has also provided for price stability for these tropical paradise countries. The East Caribbean dollar ‘XCD’ is presently one of the stronger regional currencies in circulation within the Caribbean, Central America and parts of South America.
POLITICS: many EC countries are formerly connected with the United Kingdom and/or members of the British Commonwealth (ie. Dominica, St. Lucia, Antigua & Barbuda) while 2 member states are currently UK overseas territories including Anguilla and Montserrat. Legal systems are sound and based on English common law. Democratic systems are in place for the member countries as noticed more recently in March 2004 with the citizens of Antigua & Barbuda voting out of office Prime Minister Lester Bird after more than 50 years of family rule.
ECONOMY: the currency zone has positive macro economic performance including overall balance of payments, financial & capital account surplus although the current account is in deficit. The EC currency union goal is for 6 percent GDP growth while eliminating poverty. Unemployment and poverty remain at high levels within the EC union. Tourism, offshore financial services, fish resources and agriculture (sugar, bananas) are the major source of foreign exchange earnings.
Economic Statistics
Total GDP for the currency zone is at $3.247 billion USD as measured by purchasing power parity with corresonding GDP/Capita measured at $5,700 USD. Strong EC regional performance in the capital and financial account with the EC zone recording a surplus at 17 percent of GDP for 2001-02. Annual tourism revenue is in the range of $2.5 billion USD. Inflation is low in the 2 to 3 percent range.
POSITIVE: growing trend of lands sales to non-residents will be an important source of foreign capital & future construction, lower interest rates are bringing debt servicing costs down, Montserrat is recovering from the July 1995 Soufriere Hills volcanic eruption, opening of stock exchange in St. Kitts-Nevis in January 2002. CONCERN: higher oil price will impact the current account negatively coupled with lower current transfers of financial aid to the region, economic citizenship on some island states may have ended up in the ‘wrong hands’.
BANKING SYTEM: the ECCB headquartered in St. Kitts & Nevis is responsible for the common currency zone monetary policy as dictated by the Central Monetary Authority. The ECCB is required to hold foreign reserve assets of at least 60 percent of the monetary base. The central bank provides monetary arrangement for: issuance of a single currency, the flow of which is unrestricted among its members, a common pool of foreign exchange reserves. As of December 2003, the minimum prime lending rate was quoted at 8.5 percent. Net foreign assets at ECCB as of January 2004 at $565 million USD equivalent. Within the EC, there have been incidences of dubious banking operations including a bank fraud that occurred in the mid 1990’s within Grenada.
REGIONAL ANALYSIS: United States, Caribbean
EC state member countries are negotiating a hemisphere trade agreement for the America’s. Trade liberalization is evident within the EC and with other regional economies. States like Grenada are implementing a value added tax (VAT) as a way to offset lost revenue from tariffs and import levies. These EC island countries do have economic wealth disparities with Antigua & Barbuda the wealthiest nation at $11,000 USD/ person and tiny Montserrat the least developed at $3,400 USD as measured by PPP.
KNOWLEDGE: Tourism & Offshore Financial Industry Outlook for EC Members
The key to earning foreign exchange monies for these small island states is for the most part derived from tourism and offshore financial services. The EC economies are developing into credible offshore finance & banking centres coupled with the active and growing tourism sector. This is vital in order for the common currency zone to increase its overall standard of living. Five of these offshore jurisdictions in the past have been highlighted and characterized as being uncooperative with OECD financial authorities but the good news is that they have been removed from the blacklist issued by Paris based, Financial Action Task Force (FATF).
Dominica in 2002 passed an anti-money laundering law in order to be removed from this blacklist. The Dominican government is focused on developing a viable offshore finance & banking centre similar to several other Caribbean states. Nevis today is considered to have one of the world’s best offshore banking jurisdictions with an established industry coupled with pro-offshore laws which have existed for over 20 years. St. Vincent, Antigua and St. Lucia also have active and growing offshore financial services industries in place. Today, St. Vincent is widely known as an IBC jurisdiction as it was removed from the list of Non-Cooperative Countries and Territories blacklist in July 2003 as it now has a high level of anti-money laundering regulations in place. St. Vincent is poised for large growth in this offshore banking business. And Grenada in March 2003 was removed from FATF blacklist as it implemented significant reforms to counter mony laundering.
Anguilla is becoming known as a luxury high-end tourism centre whilst developing a modest offshore banking sector. Other tourism issues include Dominica where the industry is not developed due to difficult terrain and geography and lack of an international airport. Within St. Lucia, tourism is its largest industry component as is Antigua where tourism accounts for 65 percent of GDP. Construction activities within St. Vincent reveals an increase in tourism potential to compliment its banking activities.
CURRENCY: ISO symbol ‘XCD’, East Caribbean dollar. At time of review on June 7, 2004, the East Caribbean dollar had an exchange valuation of 2.6950 XCD to the US-dollar (‘USD’) reflecting the hard currency peg in place since 1976 at a valuation of approximately 2.70 XCD to 1 USD. Some analysts have suggested that since the ECCB holds foreign reserves exceeding 90 percent of the monetary base, the regional central bank functions of the ECCB are very similar to that of a currency board arrangement for the XCD. No black market for the currency exists in the EC currency union, reflects great confidence in the XCD. The USD is accepted everywhere within the EC with most banks offering dual XCD and USD accounts.
CURRENCY HISTORY: the XCD came into circulation on October 6, 1965 when it then replaced the BWI dollar ‘West Indies dollar’ of the former British Caribbean currency board. Barbados withdrew from the XCD currency union in December 1973 while both British Guyana and Trinidad & Tobago withdrew from the BWI dollar in 1962.
CURRENCY FORECAST: fixed hard peg to the USD to remain in place as it has provided for exchange stability by fostering foreign and domestic investment, the XCD is a well managed currency. Further, the continued expected depreciation of the USD will help export competitiveness for the EC union members. In the long run, it is quite possible that a larger new regional currency for the entire Caribbean bloc will be in existence to compete with other global currency blocs such as Africa’s CFA franc, the US-dollar, China’s yuan, etc.
UPDATED: June 7, 2004
