The Eastern Caribbean Currency Union at a crossroads: The road ahead

On April 14, 2015, the then-Chairman of the Eastern Caribbean Central Bank (ECCB) Ralph Gonsalves, prime minister of Saint Vincent and the Grenadines, addressed the citizens of the Eastern Caribbean Currency Union (ECCU) on decisions taken by the Monetary Council (MC) of the ECCB on Feb. 24, 2015, at its headquarters in Basseterre, St. Kitts.  

The speech, which was aptly titled, “Strengthening our currency union and securing our future,” set out proposals for the future of ECCU. For purposes of background and to set the context of this article, it is important to note the following:

  • Firstly, the ECCB serves as the central bank for eight of the 10 full and associate member states of the Organisation of Eastern Caribbean States (OECS) which use the Eastern Caribbean or EC Dollar as their official currency. The OECS is a sub-regional political organization comprising sovereign and non-sovereign islands in the Eastern Caribbean stretching from north-west in the British Virgin Islands (BVI) eastwards to Anguilla and southward down the archipelago of islands to Grenada, formed by the Treaty of Basseterre in 1981. The British Virgin Islands and Martinique, which are both associate member states of the OECS, use other currencies; the U.S. Dollar in case of the former and the Euro in case of the latter. The member territories which are part of the ECCB and which as a result are members of the ECCU are Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Lucia, Saint Kitts and Nevis, and Saint Vincent and the Grenadines.
  • Secondly, the ECCB’s mission, as set out in the agreement which facilitated its creation in 1983, is to maintain the stability of the EC Dollar and the integrity of the banking system in order to facilitate the balanced growth and development of member states. It has three main functions, namely to conduct normal central bank operations and services, to pursue research and offer advice to member state governments and finally to monitor and regulate the commercial banks as well as the entire financial system within the ECCU.
  • Thirdly, the ECCB is perhaps one of the best examples of success for the regional integration movement. Growing out of the ashes of the failed Federation of the West Indies following the collapse of that body in 1962 and the subsequent independence of Jamaica, Trinidad and Tobago, and Barbados, the ECCB has served the sub-region of Anglophone islands well. The former jurisdictions of course went on to establish their own currencies, replacing the British West Indian Dollar which most of the region used except the BVI (which stopped using the BWI Dollar in 1961 and adopted the U.S. Dollar) and the Bahamas, it seems. Both those jurisdictions, along with Bermuda which is in the Atlantic Ocean geographically, Belize which is in Central America, and Guyana which is in South America, were never part of the aforementioned Federation.

The British allowed for special arrangements for the BVI, Turks and Caicos, Bermuda, Cayman Islands and its other possessions, thus grouping the remaining jurisdictions within the Caribbean archipelago as part of the East Caribbean Currency Authority in 1965. This later became the ECCB formed by Treaty in Trinidad in 1983 to govern the issuance of the Eastern Caribbean Dollar, the successor one could argue to the aforementioned British West Indian Dollar. The success of the Eastern Caribbean Dollar can be attributed not only to the management of it by the ECCB but also to the fact that it has been pegged to the U.S. Dollar at a rate of EC$2.70 to US$1 since July 7, 1976.

As a consequence, while the larger jurisdictions mentioned above suffered massive currency gyrations and devaluations throughout the 1980s and since, the fixed exchange rate allowed for a relatively stable but low level of economic development within the ECCU which continues to today. This is something of course of which the ECCU can be proud despite there being other economic negatives which it faces.

An interesting fact about the ECCB is that it is only one of four multistate Central Banks in the world. The others being the European Central Bank (ECB), which the ECCB predates in age by 15 years, the Central Bank of West African States and the Bank of Central African States. It is said that when the ECB was being established, representatives journeyed to Basseterre to understand how the ECCB was able to coordinate policy across several states, including non-sovereign ones, to support a single currency.

Current economic performance 

Instead of reinventing the wheel, I will quote extensively from the Annual Economic and Financial Review 2014 published by the ECCB in order to paint a picture of the most recent comprehensive analysis of the economy of the ECCU. According to this Review, “Preliminary data indicate that, amidst positive developments in the global economy, the pace of economic recovery in the Eastern Caribbean Currency Union (ECCU) strengthened in 2014, relative to the previous year.

The improvement in economic activity was facilitated by continued recovery in the global economy, particularly the major trading partners. Real GDP in the Currency Union is estimated to have expanded for the third consecutive year, registering a preliminary increase of 1.3 percent in 2014, compared with 1.1 percent in the previous year. Increases in value added were recorded in a number of key sectors, including hotels and restaurants, agriculture and transport, storage and communications.”

It goes on to say that, “Economic activity expanded in six of the eight territories of the ECCU and was partially moderated by contractions in Saint Lucia and St Vincent and the Grenadines. Consumer prices for the ECCU in general rose by 1.5 percent, on an end of period basis, in contrast to a decline of 0.2 percent in the price level during 2013.

“The overall deficit on the consolidated fiscal operations of member governments narrowed, mainly associated with developments on the current side, supported by a reduction in capital expenditure. Despite the improvement in the overall fiscal performance, the outstanding debt of the public sector rose, largely as a result of increased external borrowing. In the banking sector, monetary liabilities and net foreign assets expanded while domestic credit contracted.

Liquidity in the commercial banking system improved, associated with an expansion in the deposit base coupled with a decline in credit. The spread between commercial banks’ weighted average lending and deposit interest rates widened to 6.22 percentage points. In the external sector, a larger overall balance of payments surplus was recorded, reflecting lower net outflows on both the current account and the capital and financial accounts.”

On the positive side, it should be noted that, “The regional economy is forecasted to continue on its path of recovery in 2015, based on positive GDP expectations for all member territories.

The main impetus for economic expansion is a projected turnaround in the construction sector, supported by strengthened performances in a number of the other key service sectors including hotels and restaurants, transport, storage and communications and wholesale and retail trade. Contribution to economic activity is also anticipated from continued improvement in the agriculture, livestock and forestry sector. It is likely that the central governments’ consolidated fiscal balance will yield a smaller overall deficit as governments continue their fiscal consolidation efforts.”

The Review adds the cautionary note that, “The economic outlook for the ECCU region, however, is contingent on developments in the global economy. Amidst persistent downside risks, global growth is projected to continue on the path of recovery, driven by heightened activity in the advanced economies, particularly the USA. These developments, along with fluctuations in the price of major commodities, geopolitical tensions and adverse weather all have the potential to negatively impact growth forecasts for the ECCU.”

With this in mind, I now turn to the MC’s decisions which seek to address the problems facing the ECCU and specifically the banking sector. In his speech, Prime Minister Gonsalves said specifically that, “Notwithstanding this improvement [in the economy of the ECCU in 2014], our economies continue to face challenges to sustainable growth, fiscal and debt sustainability and financial stability. The Monetary Council desires to see faster economic recovery and stronger job creation.”

The road ahead 

Lower Minimum Savings Deposit Rate

Firstly, the MC decided to lower the minimum deposit rate from 3.0 percent to 2.0 percent. The last time it did this, the rate was reduced in 2002 (following the economic downturn after the Sept. 11, 2001, terrorist attacks in the U.S.). At that time, the MC reduced the rate from 4.0 percent to 3.0 percent.

In explaining the reason for this, Prime Minister Gonsalves said that the ECCU’s, “banking system has a lot of money – excess liquidity, yet credit to the private sector (new loans) is declining. Last year, despite the fact that the banks had excess liquidity, credit declined by 4.5 percent. Declining credit to the private sector makes economic recovery slower.

This situation has to change. At the same time, non-performing loans in the banking system are very high and average 18.8 percent across the ECCU, largely because of the difficult economic situation in many of our countries. High non-performing loans make our banks less willing to lend and weaken our economies.

This situation must change. In the face of declining profitability or losses, banks have sought to lower operating expenses. This cost reduction effort has led to the closure of several branches in the ECCU and beyond.”

The Prime Minister argued that as a result of the MC’s decision to lower the minimum deposit rate, the banks in the ECCU will have a lower cost profile. He added that, “Combined with the economic recovery taking place in our economies, we expect to see banks start lending more to the private sector.

There are too many potentially good businesses struggling to secure working capital and struggling to survive. Some of these businesses are paying very high interest rates on loans from our commercial banks.

As a consequence of the lower deposit rate, we anticipate a lowering of interest rate spreads. More importantly, we expect to see businesses pay lower interest rates on loans provided by our commercial banks. We are especially keen to see lower interest rates for all export-oriented firms. We would also like to see interest rates on mortgages continue to fall so that more of our people can afford to own a home.”

In defense of this, the Prime Minister pointed out, correctly I might add, that the rate on savings in the ECCU remains higher than the rate in Trinidad and Tobago which is 0.2 percent; Canada – 1.0 percent; and the USA, less than 1.0 percent.

It is also worth noting that the Eastern Caribbean Securities Exchange and the Regional Government Securities Market offer citizens of the ECCU, higher yielding investment opportunities with higher interest rates than the banks themselves.

Stronger regulatory and supervisory framework for banks 

Following the takeover of one of the licensed banks in Antigua/Barbuda and two in Anguilla by the ECCB, in recent years, the MC decided to pursue a comprehensive bank resolution strategy aimed at strengthening the resilience of the financial system in the ECCU. The first step is to ensure the full protection of all depositors by ECCU Governments.

  • Secondly, the MC approved a new Banking Bill, for passage by member governments. This bill provides for:
    The issuance and revocation of licences by the ECCB rather than the respective Ministers of Finance;
    Pre-emptive measures to deal with problem banks;
    Appropriate levels of capitalization for banks and credit institutions; and
    Clear criteria for the persons who can be appointed as directors and managers of banks.
  • Thirdly, the MC, within the framework of the comprehensive resolution strategy, approved amendments to the 1983 ECCB Agreement Act to strengthen the powers of the ECCB. The amendments address several deficiencies which were revealed when the ECCB intervened in the three banks mentioned above according to Prime Minister Gonsalves.
  • Fourthly, the MC approved the drafting of regional foreclosure legislation to allow for more efficient management of collateral by financial institutions.
  • Fifthly, the MC approved an Agreement and draft Bill to establish the Eastern Caribbean Asset Management Corporation. This Corporation will assist with the management of non-performing loans.
  • Sixthly, the MC approved the establishment of a Deposit Insurance Fund. According to the Prime Minister “Ultimately, our strategy will result in a stronger banking sector resulting in greater financial stability and faster economic progress. The measures that we have taken are to ensure that your deposits are safe.”

It is worth noting that certain provisions of the Banking Bill have proved controversial within the ECCU, especially the decision to remove the licensing of banks from within the ambit of each member government’s Ministry of Finance and handing that over to the ECCB without the usual political oversight, or interference, as some would say.

Personally, I welcome these proposals especially the oversight of bank managers and directors in terms of their qualifications and competences to be appointed. It is my submission that in the case of Anguilla at least, were this in place before, the problems in the two banks there might not have developed in the first place.

What the chairman did not say, however, is that the region is “overbanked” with too many smaller players in the marketplace, and thus some rationalization will need to occur to strengthen the sector as a whole or the situation will deteriorate at some point.

Extension of timetable for debt target  

The MC decided to extend the timetable to reduce the ECCU member governments’ Debt/GDP Ratio to 60.0 percent from 2020 to 2030. According to the prime minister: “Attaining this target by 2020 required prudent debt management and continuous economic growth at a level sufficient to meet the target.

Unfortunately, there has been little or no growth in the ECCU for most of the past five years. Furthermore, it ought to be recognized that this target was set before the Great Recession commenced in 2008. Since then, the Eurozone has extended its own timetable to reflect its current reality of little or no growth.

“The Eastern Caribbean Currency Union [ECCU] too must adapt to its current reality. As a consequence, the Council has decided to extend the target to 2030. In so doing, member governments have resolved to pursue appropriate fiscal consolidation measures. Indeed, most governments have already so commenced these measures. It is likely some countries will achieve this target before 2030.”

I will take the MC at their word for the decision to push back the target date for debt reduction but disagree in principle since it seems to me that member governments, like most governments in the world, are kicking the proverbial can down the road by refusing to make the hard decisions now for political reasons while passing on problems to future generations.


I commend the MC for taking pro-active steps, albeit late in my view, to address some of the fundamental challenges facing the ECCU. It remains to be seen however, if the citizens of the ECCU, and their respective political directorates have the will to implement and see these changes through. For all our sakes, I hope, they or rather, we, do.

As an endnote, I also wish to congratulate my own Chief Minister and Minister of Finance Victor F. Banks of Anguilla, who succeeded Prime Minister Gonsalves in late July 2015 as chairman of the MC and thus head of the ECCU at a time when these changes have to be implemented and Anguilla’s own problems with its indigenous banks have to be resolved.



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Carlyle K Rogers

Carlyle K Rogers MBA, LLM is a barrister-at-law in Anguilla who practices in the areas of corporate and financial services law. He is also admitted in the BVI and New Zealand, owns and manages the Stafford Group of Companies.  He studied law in London at Queen Mary and Westfield College, University of London, where he obtained an LLB (Hons) degree in 2001 and with the University of London (International Programme) from which he obtained an LLM degree in Corporate and Commercial Law in 2005. He completed the Legal Education Certificate (LEC) at the Hugh Wooding Law School in Trinidad in March 2013 and was admitted as a barrister of the Eastern Caribbean Supreme Court in Anguilla and BVI in 2013. 

Carlyle K Rogers MBA, LLM
Stafford Group of Companies
201 The Rogers Office Building
Edwin Wallace Rey Drive
George Hill, Anguilla

T: 1 264 498 5858 + 1 264 498 5858 ; + 1 954 607 7239/7217
C: 1 264 476 5858 + 1 264 476 5858
F: + 1 264 497 5504
E: [email protected] 


Stafford Corporate Services

Stafford Group of Companies
201 The Rogers Office Building
Edwin Wallace Rey Drive
George Hill

T: 1 264 498 5858
T: + 1 264 498 5858
T: + 1 954 607 7239/7217
C: 1 264 476 5858
C: + 1 264 476 5858
F: + 1 264 497 5504 
E: [email protected]