While the various members of the European Union ponder their next steps to shore up their respective deficit and debt positions, there is a little known banking arrangement in the Caribbean that has managed quite nicely to deal with similar issues, although on a much smaller scale, since 1965.
The Organisation of Eastern Caribbean States (“OECS”) is comprised of nine independent states in the region, but, with the exception of the British Virgin Islands, eight of these member states have joined to form the Eastern Caribbean Currency Union and operate with a common currency, the East Caribbean Dollar (sign: “EC$”; code: “XCD”).
The “XCD” is not a free-floating currency. It is presently “pegged” to the U.S. Dollar, a process started in 1976 and administered by the arrangement’s central bank, the Eastern Caribbean Central Bank (“ECCB”). This monetary authority represents eight separate nations and two territories, namely, Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines, as separate nations, and the two territories of Anguilla and Montserrat. The bank was officially formed in 1983 with the primary task being to ensure the financial integrity of the regional banking system and maintain price stability with respect to the “XCD”.
The official exchange rate today is 2.70 EC$ to the USD$. This exchange rate was reset in December of 2010 from below 2.60 to encourage a recovery after the recent recession. The currency is used by nearly 625,000 inhabitants in the region, about the size of Washington, D.C. The Commonwealth of Dominica, however, with a population of 67,000 is just under the regional average of 77,000, but many economists purport that its economy is the most challenging in the area for a number of reasons.
The treaty that formed the current arrangement allows for the free movement of labor, capital, and goods across the region, but tourism, the primary driver of foreign exchange income for many of the member states, is unduly impacted in Dominica because the island is still volcanic and few beaches have been developed to attract the vacation community. As a result, the majority of workers tend to be in agriculture, which is often vulnerable to hurricanes and changing weather conditions. Agricultural exports and tourism are both sources of foreign exchange revenue.
Dominica, nevertheless, is known as “The Nature Isle of the Caribbean” for the pristine nature of its natural beauty. The tourist trade may have been slow to develop, but for the adventurer that prefers a natural setting, Dominica abounds in mountains, rainforests, freshwater lakes, hot springs, waterfalls, and diving spots. After building modern docking facilities, the island is now frequented by a host of cruise ships. The nation is also considered a tax haven and does not have exchange controls, two conditions that could attract more financial services and brokers of such things as binary options, favored by today’s forex trader.
The financing of necessary imports is carried out by the central bank as it manages the group’s total foreign exchange reserves, which currently approximate three months of imports. The recent recession has hit the region especially hard, leading to reduced tourism, construction, and foreign investment. The World Bank, however, has stepped in to finance a number of projects designed to provide a base for economic recovery.
New treaty modifications will also permit the OECS to have more unilateral control in the areas of the common market and customs union; monetary policy; trade policy; maritime jurisdiction and boundaries; and civil aviation. Recovery has been slow, but prospects for Dominica and the region are good for 2012.
EDITOR’S NOTE: This is a guest column by Tom Cleveland of Forex Traders. For more information on Forex Traders click on link below.
This article is misinformation. There is nothing unique about the caribbean banking system, practically most nations peg to the US.
The writer is stressing economic stability but he fails to mention when our currency is pegged to the US the US is exporting inflation to our shores. He also forgets to mention our high debt to GDP ration example st.kitts, & Dominica none of these oecs countries operating a surplus.
He calls us tax havens another lie, these oecs countries have a Vat tax, income tax, corporate tax and property tax, tax haven my foot. U want a tax haven look at Cayman islands.
Just give these islands sometime they will soon find themselves in a Europe situation.
Not good. But then again, there are few choices.
What a vague article. “Dominica is supported by a unique banking system “- What was the writer trying to accomplish? Was it his intension to highlight the fact that Dominica is the black ship of the Eastern Caribbean economic partnership or was it an attempt to sugar coat the rotten gooseberry piet? There is nothing new in what was said So far all that was said. Let me first disagree with the writer that our economy is the most challenged weather and or geographic composition . The only reason we are where we are is d because of corrupt and bad administration. Let us not forget that we were once the flag ship of the eastern Caribbean. Our economy was once upon a time better than that of St Kitts, St Lucia, St Vincent, Grenada and others. Our country did not become volcanic on a fligh by night basis; we’ve had hurricanes for the last 50 years but so are the other islands some of which are also volcanic and mountainous. Governments before recognized the significance of agriculture towards the strengthening of our economic position. The last 12 years of negative growth and development is a direct result of the demise of farmers and the agriculture industry; Also a government so corrupt that the value of the nation has been transformed into a dependent society. A society that has become paralyzed by government victimization , scare tactics by lawyers and the PM; police corruption and bribery of the clergy and intelligencia.
The writers prediction that 2012 will bring good fortune is unsubstantiated – We are halfway through the year sir and there have been no signs of growth instead we have an operating government who cannot pay their bills; farmers shunned and disenfranchised; unemployment and crime on the rise – telling tales of a bad situation seemingly getting worse. Mr Cleveland it would have been great to tell us why you think that things are going to be better in 2012. So far Mr Cleveland you have exposed your agenda quite well – are you or are you not a mercenary sent by those whose only intension is to fool the people with garbage and propaganda. You punch line is nothing but a swing without elbow grease- where is the backup- We are still waiting
thanks for this article i was waiting
i knew it was going to pop up
let those bad ones die and does good ones stay
Thank God, we too small for our own currency, like Jamaica.See what happens if you try to change that at the bank. One of the wisest, smartest decisions ever taken.So don’t bring us that Sucre proposed by Alba. We want to keep our Dollar.
I always thought the exchange rate was fixed at 2.7169, guess you learn something new everyday
This is valuable information on the economy from a perspective that is different from what we usually hear.
Thanks for this article, and the knowledge that stems from it. More articles, such as this, regarding the current economic state of DA would be helpful to some of us that live overseas.